2012 Social Security COLA Increase

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.

Update: Here’s the official press release. There’s also a fact sheet showing the changes to some other related amounts.

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.

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  1. nick says

    And I’m in my third year of pay freeze. Where’s my COLA? If I don’t get one, I shouldn’t have to pay for others to get one.

  2. edward says

    This is also the significant month for I Bond rate. You working on the next post, TFB? Trailing 12 month CPI-U looks to be 3.87%. Glad I have TIPS, can’t find a CD to beat that.

  3. Money Beagle says

    This working man hasn’t seen an increase in salary in the same time. Here’s hoping that I’m so lucky this year!

  4. Andy says

    Because of the COLA increase, the maximum taxable earnings (wage base) subject to social security also increased from $106,800 to $110,100, or a 3% rise. So for higher income earners, expect a little less in your paycheck. But overall, I think this is a fair deal as retirees can use the money more.

  5. edward says

    subject to social security also increased from $106,800 to $110,100.

    Assuming the reduced FICA rate is continued (10.2% combined), that $3300 extra subject to tax amounts to at most $336.60 a year, multiplied by the number of people in/above that income range. I suspect the extra outlays for people who retire early as a last recourse in 2012 will easily absorb that extra revenue.

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