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Social Security providing minimal raise for 2013

Today, people collecting Social Security checks are likely to get some bad news. Their annual cost of living raises for 2013 may be quite small, experts say.

Several nationally renowned organizations have made predictions about next year’s Social Security cost of living adjustment, which the government will announce formally on Oct. 16 and which will take effect in January. The American Institute of Economic Research, a nonpartisan economic research organization, predicts that seniors will get a 1.5 percent to 1.7 percent raise; the Congressional Budget Office, a government agency that reviews congressional budgets, 1.3 percent; and the Senior Citizens League, a nonpartisan senior advocacy group, about 1.4 percent.

For the average Social Security beneficiary, who gets about $1,130 per month, this isn’t much: A 1.4 percent raise would only raise the monthly check by about $15.80.

Seniors got a 3.6 percent raise for calendar 2012, but for 2010 and 2011 they saw no increase. Since 1975, the annual Social Security cost of living adjustments have been below 2 percent a total of only five times. The relatively low 2012 increase “could erode buying power for millions of beneficiaries,” says Mary Johnson, a senior policy analyst at The Senior Citizens League.

Plus, a large part of the 2013 adjustment may get eaten up by increases in Medicare Part B premiums (earlier this year, the Medicare Trustees predicted that the standard Part B premium would increase by more than $9 per month in 2013, to $109.10).

The raise is determined by price inflation, which hasn’t gone up a lot in the past year. More specifically, the COLA reflects changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which looks at price changes among goods like food and transportation that the typical worker might buy.

The use of the CPI-W has been criticized by many experts, who think that it doesn’t weigh the items it measures in a manner that makes sense for seniors (for example, some contend that health-care costs - which are rising rapidly - are not weighted correctly in the CPI-W to reflect how much of their income seniors must pay for it). For its part, the American Institute of Economic Research uses its own index, which researchers there think more accurately reflects the prices fluctuations that seniors might face. Their index showed that in August, prices rose 2 percent compared to a year ago, significantly more than the CPI-W figures will likely reveal.

To be sure, the government is at least trying to fairly make sure seniors have the money they need to buy everyday things. “It’s hard to create an index that captures the experience of every American,” says Steve Cunningham, the director of research and education at the institute.

But for the 60 percent of seniors who depend on Social Security for at least half of their retirement income, this is hardly a consolation. “The average benefit wasn’t high to begin with, and this raise isn’t going to help much,” Johnson says.


©2012 MarketWatch

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