Good news for the millions of Americans who rely on Social Security… they will be getting a raise in 2012, the first time since 2009.
The Social Security Administration (SSA) announced that the cost of living allowance (COLA) increase for 2012 will be 3.6%.
According to SSA, the average monthly benefit for retirees will increase from $1,186 to $1,229; for individuals who receive disability benefits the average benefit will increase from $1,072 to $1,111.
The purpose of the COLA is to make sure that Social Security benefits keep pace with increasing prices. The SSA reviews the Consumer Price Index each year to determine the increase in benefits to Social Security beneficiaries. If the CPI hasn’t increased, then neither do Social Security benefits.
The last COLA increase was in 2009 and was based on the CPI in 2008. You may recall that gas prices soared in 2008, which is why the 2009 COLA (5.8%) was the largest in 27 years. In 2009 and 2010, the overall inflation rate was actually lower than it was in 2008; as a result Social Security recipients were denied a COLA increase in 2010 and 2011.
While gas prices have gone down, the overall inflation rate in 2011 was higher, thus 2012 will see the first COLA in a few years.
Unfortunately, Medicare Part B payments are also expected to increase in 2012 (the first increase in a few years), which could erode part or all of the COLA increase that recipients get.
Finally, for people still working, the amount of income subject to Social Security tax will also increase. Currently the maximum earnings level is $106,800; in 2012 that number will increase to $110,100. The SSA expects this will affect about 10 million people.
For more information about the 2012 changes, please see Cost-of-Living Adjustment (COLA) Information for 2012.