2013 Social Security COLA Increase

Having projected the 2013 tax brackets and 2013 401k and IRA contribution limits, I now turn to 2013 Social Security Cost of Living Adjustment (COLA).

Social Security adjusts to inflation by a different Consumer Price Index than the tax brackets and 401k and IRA contribution limits. It uses Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) instead of Consumer Price Index for All Urban Consumers (CPI-U). When you hear news reports talking about inflation and the CPI, they are usually talking about the CPI-U.

When Social Security calculates inflation, they also use the Q3 average year over year. In other words, compare the average CPI-W from July 2012 to September 2012 with the average CPI-W from July 2011 to September 2011. This will determine the Social Security COLA increase for 2013.

September 2012 CPI-W won’t be released until mid October. I estimate it will be a 0.2% increase from August. This is the average monthly increase so far this year. If that’s the case, the Q3 average CPI-W will have increased 1.6% over the Q3 average CPI-W last year.

[Update on October 16, 2012: The CPI-W in September is up 0.5% from August. This makes the Q3 average 1.7% higher than previous year.]

So there’s the number: 1.6% 1.7% Social Security COLA increase in 2013.

The increase will be first seen in the December 2012 benefits, payable in January 2013.

Medicare Part B Premium

If a Social Security recipient is enrolled in Medicare Part B, which covers doctor visits among other things, the Medicare Part B premium will be deducted from the monthly Social Security benefits. Whenever people talk about Social Security COLA, I always hear some say the COLA will be eaten up by the Medicare Part B premium increase.

Here the thing: one has nothing to do with the other. Deducting Medicare Part B premium from Social Security benefits is merely a convenience for the government. You can delay Social Security and still enroll in Medicare. Or you can start Social Security early and not be eligible for Medicare yet. Or you can reject Medicare Part B altogether if you don’t want it.

Social Security recipients are still getting a Social Security COLA no matter how large the Medicare Part B premium increase is. If Medicare Part B isn’t a good value, people should just dis-enroll and keep 100% of the Social Security COLA. If it’s still a good value, what’s the problem with the premium increase? A good deal not as good as before is still a good deal.

Social Security Wage Base

For those still working, the Social Security Wage Base is the maximum pay subject to Social Security tax. It’s $110,100 in 2012.

The Social Security Wage Base adjusts by another index called the Average Wage Index (AWI). It’s two years behind: the AWI change in 2011 over 2010 determines the change in the Social Security Wage Base in 2013. There is no monthly release for AWI. We just have to wait for the official press release.

If I have to guess I will give it a 2% increase. That will make it $112,300.

[Update on October 16, 2012] The Wage Base will go up from $110,100 in 2012 to $113,700 in 2013. That’s a 3.3% increase.

Remember the 2% employee temporary payroll tax holiday will go away in 2013. We can’t be on holiday forever.

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  1. John says

    Social Security increases should be determined based on the cost to live in various geographic regions throughout the country. Isn’t the cost to live in New Jersey and New york higher than living in Tennessee or the Carolina s?? I DON’T recall where I got it from but my understanding of the current system seems to be that it is an area wage survey of clerical workers some where in the mid western states. If their wages haven’t gone up neither does the CPI. I don’t know anywhere that municipal taxes,local taxes, food cost etc. have not risen this year!!!! Please correct me if I misunderstand this CPI System for determining when seniors get FAIR CPI increases!!!!!! Thank you

  2. John says

    In my prior CPI EMAIL I OVERLOOKED THE BIG ONE “”"”"HEALTH INSURANCE INCREASES”" aren’t they left out of the CPI formulation PROCESS????????????? Thank you

  3. says

    For the record the CPI-W tracks the prices of goods and services purchased by households of wage earners and clerical workers (~29% of the US population). Taxes paid while purchasing those goods (which would mostly be sales taxes I would think) are included. Health insurance is definitely included in the CPIs under the medical care services section (see also http://www.bls.gov/cpi/cpifact4.htm). There is no promise that the CPI-W (or the CPI-U for that matter) will accurately reflect any individual’s expenditures let alone a retiree’s (see also http://www.bls.gov/cpi/cpifact5.htm).

    The CPI-W most certainly is NOT based off of worker salaries… I’m not sure where you heard that.

  4. Susan says

    I am a retired widow and receive social security and va DIC due to my husbands death. Both are non taxable. I would like to start drawing from my annuity but am concerned about the tax issue. Do you know the allowable rate from social security regarding annuities?

  5. roy says

    Better enjoy your COLA this year because there probably won’t be any after this year especially if Romney gets elected president. Washington has slowly been doing away the COLA for the last few years notice how it has become smaller and smaller.

  6. says

    roy – You misunderstood. The COLA is set by law, not by the administration. It has nothing to do with Romney or Obama or whoever. There were two years of 0% COLA because the 5.8% COLA in 2009 was unusually large. The 3.6% COLA in 2012 was also unusually large. The average worker did not get a 3.6% raise in 2012. Many are unemployed or got a serious cut in their pay. Remember we are all in this together.

  7. Lisa Ventro says

    There such be a cola increase everything is getting to high and yet there really don’t want to give us our increase.
    But best of luck for us all if Mitt Romney get in to office.

  8. John says

    I think I missed something. IT’S NOT THE INDIVIDUAL EXPENSES ALONE, AS THE CPI ADJUSTMENTS WERE FROZEN FOR 2 YEARS BUT MUNICIPAL GOVT’S DIDN’T KEEP THAT IN MIND AS MY LOCAL TAXES CONTINUED TO RISE BY HUNDREDS OF DOLLARS IN EACH OF THOSE YEARS. This increase was not limited to seniors but every individual living in the municipality. You also failed to address WHETHER special cpi adjustments should be made to include high cost areas as opposed to the same flat percentage increase for everyone. Are you saying the CURRENT CPI FORMULA FAIRLY COMPENSATES SENIORS?? Maybe things would be better on all fronts if these elected politicians concentrated on taking care of the US CITIZENS that are unemployed, disabled, especially veterans, those without housing/ without food instead of borrowing money from China and sending it out of this country. Who authorized taxing the Americans and sending the money out of this country instead of taking care of our own citizens??????? Maybe the subject of increasing America’s debt and sending the money out this country should be a voting issue.

  9. says

    My question is why *must* the current CPI formula fairly compensate seniors in every way when workers who pay the tax that pays for Social Security benefits don’t have such compensation?

  10. John says

    The Law provides for the adjustments!! The Seniors whose benefits you question paid, into the Social Security System, every penny required of them to pay, while they were actively working. The business they worked for also paid a matching contribution. Your wonderful elected officials did not put the money into a Social Security lock box but spent it else where, never putting it back thereby creating the Social Security mess. They don’t tell the American worker how the funds were improperly handled by Congress .. Just that it’s in trouble. Take the money this country wastes and sends out of America and use that to sure up the system!!!!!!!

  11. says

    Exactly, John. The law provides for the adjustments. It doesn’t provide for adjusting for high cost areas or municipality tax increases. The taxes seniors paid went to their parent generation; the excess are invested in Treasury bonds held by the Social Security Trust Fund. If anybody thinks those Treasury bonds are worthless IOUs, send them to me. I want them.

  12. Susan says

    Harry, my late husband and I both paid into social security for many years. He died when he was 57 years old meaning that he never drew a penny of all the money he put into SS. Someday you, too, will be collecting SS and wondering just where your COLA is. Social Security is not a handout or gift. Us seniors paid that money and we expect it to be there when we retire.

  13. says

    Susan – I’m sorry for your loss. Social Security is officially known as OASDI – Old-Age, Survivors, and Disability Insurance. It’s insurance. The Social Security tax is a tax for supporting the parent and grandparent generation. The money you and your late husband paid already went to good causes — your parents and grandparents. I don’t complain about not collecting insurance on my home for having paid premiums all these years. I don’t complain about paying a tax to support my parents and grandparents. Let’s be charitable and not just think about ourselves.

  14. Susan says

    Harry – Thank you for your condolences.

    I don’t see where I said anything in my post that lead you to believe that I am not being charitable and just thinking about myself..please explain.

    Of course I know that what we paid into ss supported our parents and grandparents and that what workers are paying in today is supporting myself as well as other retirees. That is how the system was designed. With the cost of living increasing, so to should SS. I am fortunate in that I don’t have to rely on ss as my only income but there are those out there that do. Each year when there is no increase, it gets harder for them to stretch that dollar. They go without the proper food, utilities, medications, and so forth. This is unexcuseable to me. Especially when our “leaders” who make these decisions regarding COLA sit on their comfortable rear ends and don’t give a second thought to the elderly.

  15. says

    Susan – Sorry if I misunderstood. As I already said in previous comments, hard economic times is hard on everybody, both seniors and workers. It’s actually harder on the workers because they don’t have a legally mandated COLA. Instead of a small increase, they are facing unemployment, pay cuts and pay freezes. Wanting a larger COLA means wanting to get more from the workers because you said you understand what workers are paying in today is supporting yourself as well as other retirees. That’s what I mean. We are all in this together. Think about the workers before you demand a higher COLA from them.

  16. Susan says

    Harry – Yes, I do think about the workers. I have family members still in the work force including 4 adult children and now a grandchild (19) who has actually been working since she was 15. It is difficult I will agree and I can only hope that they are smart enough to not rely solely on SS when they each reach retirement age.

    It is a catch 22 situation. Elderly that are suffering because they only have income from SS vs people currently in the work force trying to support their families.

  17. John says

    Way to go Susan. BUT OUR LEADERS DO CARE!! UNFORTUNATELY, it’s not about seniors. They care about special interest groups and anybody else that helps to get them reelected. Still haven’t gotten a reply from anyone that explains why the United States sends all this money out of this country and it is not used to secure Social Security BENEFITS and to help pay Medicare premiums for current and future retirees ??????

  18. Suzette says

    I’m a 52 year old divorced disabled female that has been drawing SSDI since 2007 and drawing off of my exes’ pension since mid 2011. My question is this: with a monthly income of $ 1410 from the two, will I need to file taxes? I always thought that SS benefits of any type were not taxable income, and was told that the small amount that I get from his pension is not taxable either. Can you tell me if this is true? What is the amount of income allowed before you do have to file?

  19. Suzette says

    Thank you for the link, but I don’t know where the exes’ retirement fits in and I don’t really know what I got from it in 2011 because of the fact that my house burnt to the ground and everything I owned was lost. I guess I’ll just have to call someone that prepares taxes.

    I don’t quite understand why you could one person a straight answer and not me…

  20. says

    Suzette – I don’t know what you don’t know. Barbara said she only had income from Social Security. You said you have something else. Even if you don’t have to file a tax return, you may still want to file because you may get more dollars back, but you won’t know the answer unless you go through that tool by the IRS.

  21. Debbie says

    I am 60 and my husband is 53. When can I draw SS on him and what if something should happen to him. I have all these worries because I am older. Thnaks

  22. Susan says

    Debbie..been there, done that. If your husband were to pass away and you have been married atleast 10 years, you would be able to draw SS on his benefit starting when you reach 60 years of age, so in your case, immediately. That is if your husband has worked his forty quarters = 10 years and paid into ss during those 10 years. Hope this puts your mind at ease.

  23. Kevin says

    Those facts are all wrong for 2013. Why? Because Congress hasn’t even decided if there will be an increase for this year 2013. People who guess getting hopes up of others only for them to be let down because it isn’t what they think should be fined.

  24. Susan says

    Kevin – Actually the projected increase is 1.3%. You can google it. Congress doesn’t actually vote on it until the middle of this month.

  25. says

    Kevin, Susan – Social Security COLA increase has been *automatic* for nearly 40 years now. It doesn’t take a vote by the Congress or the President’s ad hoc decision for Social Security recipients to get the increase or not get the increase or by how much. Everything is done by a math formula based on the consumer price index.

    The formula uses 6 numbers, 5 of which are already known. The only number unknown as of now is the September CPI, to be announced by the Bureau of Labor Statistics on October 16. I made an estimate for that last unknown number. I stand by my 1.6% estimate. We will see on October 16.

  26. John says

    I would hope that this so called COLA formula for determining the cola increase is the same ONE USED TO DETERMINE Congressional pay, their health insurance increase and whatever else they vote for themselves. Americans see their incomes going down but you never see a stop or reduction in health insurance premiums and local municipal taxes. Again, I ask where does the money come from that we constantly send out of this country??? Was sending the American money out of this country ever voted on by the “”"American”"” people and why isn’t that money used to help”"”" Americans”"” with their medicare premiums and to bolster the Social Security System for current and future retirees?????????????????

  27. says

    John – What money “constantly sent out of this country” are you talking about? Foreign aid? Foreign aid is voted by Congress and signed by the President. They are our elected representatives. So yes it is voted on by American people every year through their representatives. That’s how our representative democracy works. American people don’t vote on everything directly.

    You are correct in that a math COLA formula is also driving the Congressional pay. Congress has voted to reject the COLA increase for themselves more than a few times in the past. Social Security recipients have never refused an increase.

  28. John says

    Foreign Aid!! That’s correct!!!! “”"This is one major issue”"” that should be on the ballot and voted on by the American Citizens!! Too much money sent out by elected officials when we have our own hunger, lack of housing,”"” Debt Crisis”", UNEMPLOYMENT, natural disasters etc. that they all seem to disregard. From what pot do they get that money??? Are the politicians allowed to get political contributions towards their campaigns from these countries that receive this aid???? They only voted not to get a raise because people would HAVE been outraged if they got a raise IN THE YEARS WHEN COLA’S WEREN’T APPROVED FOR SENIORS. Why should the congress GET A RAISE WHEN THEY ARE THE ONE’S THAT CREATED THIS DEBT CRISIS, SO WHY REWARD INCOMPETENCE!! What this country needs is no career politicians!!! IT’S TIME FOR Term Limitations for all of them with no pensions, health insurance, and their families and they all have to live under the same guidelines they put into law for the American people, with no exceptions.

  29. John says

    Need to add some clarification. Foreign Aid during our debt crisis should be used to aid countries that insure our National Security and help countries hit with natural disasters. Too many nations riding on the financial back of this country.

  30. Karan Bullock says

    Who, for what and why do we send Foreign Aid to other countries? I’d like to know how “we the people” can get this put on the ballot. I’m with you. We need to let our voices be heard and not be silent on what’s happening to our country.

  31. John says

    Karan, Thank you for your reply regarding my comments. Unfortunately, I don’t know how to get this Foreign Aid issue on a voting ballot. Maybe Harry or another poster on this site knows the steps that need to be taken to start this type of action or knows of a political action group or other movement currently underway trying to get this issue on the Federal voting ballot. It seems to me that there is an enormous number of US CITIZENS that share these feelings.

  32. Steve says


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