The Bureau of Labor Statistics released CPI changes for September 2011. With that, we can calculate the 2012 Cost of Living Adjustment (COLA) increase for Social Security recipients.
Social Security COLA adjusts with changes in CPI-W. We take the Q3 average CPI-W and compare it with the Q3 average in 2008 because the 2008 number is higher than the number in 2009 and 2010.
The average CPI-W in Q3 2011 is 223.233. It was 215.495 in 2008. That’s an increase of 3.6%. Therefore Social Security recipients will receive a 3.6% increase in their benefits in 2012.
A 3.6% increase in benefits is pretty good. Will the average employee get a 3.6% raise in 2012? I doubt it.
I also heard complaints about no Social Security COLA increases for two straight years in 2010 and 2011. That’s because people conveniently forget that there was an unusually large 5.8% increase in 2009 . It was unusually large in 2009 because CPI spiked in Q3 2008. Had the increase been calculated using Q4 averages instead of Q3 averages, the Social Security COLA increases would have been 1.3% in 2009, 1.8% in 2010, 1.5% in 2011. Social Security recipients are actually better off with a 5.8% increase up front followed by zero increase for two years than with small but steady increases in last three years.
The most relevant change for those who are still working is the Social Security Wage Base, also known as the taxable maximum. It’s the maximum amount of wages subject to Social Security tax (there is no maximum for Medicare tax). It will go from $106,800 in 2011 to $110,100 in 2012, a 3.1% increase. That means if you earn more than $106,800, you will pay more Social Security tax in 2012, above and beyond losing the temporary 2% payroll tax holiday if the holiday is not extended.