Social Security benefits to increase by paltry 1.5 percent

Social Security benefits will rise 1.5 percent in January, giving millions of retired and disabled workers an average increase of $19 a month to keep up with the cost of living. But social workers say it won't be enough.

New budget talks in Congress Wednesday also might change the standard according to which Social Security benefit increases are calculated, cutting retiree incomes in the future.

The benefits increase is among the smallest since automatic adjustments were adopted in 1975, and reflects the fact that consumer prices haven't gone up much in the past year. The annual cost-of-living adjustment, or COLA, is based on a government measure of inflation that was released Wednesday.

"Yea. Whoop-de-do," said Lance Colvin, a retired office worker in Kirkland, Wash. "That's my opinion."

Automatic COLAs were adopted in 1975 so that benefits for people on fixed incomes would keep pace with rising prices. Some advocates for older Americans, however, say that the COLA sometimes falls short, especially for people with high medical costs.

Michael Hartzog of Charleston, S.C., said the small COLA will make it difficult to keep up with his wife's medical bills.

"We'll probably need to reduce our spending even more," Hartzog said. "I don't know exactly how."

Hartzog, 63, is retired after working 38 years at the Social Security Administration in South Carolina. He said his federal pension and Social Security benefits are affected by the COLA.

The COLA affects benefits for more than one-fifth of the country: nearly 58 million Social Security recipients, as well as benefits for millions of disabled veterans, federal retirees and people who get Supplemental Security Income, the disability program for the poor.

Social Security pays retired workers an average of $1,272 a month.

Benefits are based on lifetime earnings. The more you make, the higher your benefit — to a point. For someone who retired this year at age 66, the maximum monthly benefit is $2,533. That person will get a raise of about $38 a month.

The amount of wages subject to Social Security taxes is also going up. Social Security is funded by a 12.4 percent tax on the first $113,700 in wages earned by a worker, with half paid by employers and the other half withheld from workers' pay. The wage threshold will increase to $117,000 next year, the Social Security Administration said.

About 165 million workers pay Social Security taxes. About 10 million earn wages above the threshold, the agency said.

Since 1975, annual Social Security raises have averaged just over 4 percent. Next year will mark only the seventh time the COLA has been less than 2 percent. This year's increase was 1.7 percent. There was no COLA in 2010 or 2011 because inflation was too low.

"By providing protection against inflation, the COLA helps beneficiaries of all ages maintain their standard of living, keeping many from falling into poverty," said executive vice president Nancy LeaMond of AARP, the American Associated of Retired Persons.

"The COLA announced today is vital to millions, but at an average of just $19 per month, it will quickly be consumed by the rising costs of basic needs like food, utilities and health care."

Lower prices for gasoline are helping keep inflation low. The average price of a gallon of regular gasoline has dropped over the past year from $3.53 to about $3.28, according to the automotive club AAA.

Over the past year, medical costs went up less than in previous years but still outpaced other consumer prices, rising 2.4 percent, according to the Bureau of Labor Statistics. Housing costs went up 2.3 percent.

To save money on benefits, Congress has considered adopting a new measure of inflation called the chained CPI, which would, on average, result in slightly smaller COLAs most years.

Many economists argue that the chained CPI is more accurate, because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience. The White House has called it a "technical change," though many advocates for older Americans are pledging to fight it.

The issue could come up again as part of a new round of budget talks that began Wednesday on Capitol Hill. Following the recent government shutdown, House and Senate leaders formed a new committee that is trying to reach a budget deal for next year and beyond. The committee has a deadline of mid-December.

"Proponents of a stingier COLA formula claim the chained CPI is more accurate. However, in truth it is a benefit cut for millions of current and future retirees, veterans, people with disabilities and their families," said Max Richtman, who heads the National Committee to Preserve Social Security and Medicare.

Al Jazeera and The Associated Press