## How Social Security COLA is Calculated

Do you know how the COLA is calculated for your Social Security benefit each year. We step through the actual formula to calculate the increase here.

## What’s Up With Medicare Premiums? How Increases Are Determined

How are Medicare premiums determined each year? Sometimes there is an increase, and other times there’s not (at least for some).

## No Social Security COLA for 2016; Wage Base Unchanged as Well

Recently the Social Security Administration announced that there would be no Cost of Living Adjustment (COLA) to recipients’ benefits for 2016.  This is the third time in 7 years that there has been no adjustment.  In 2010 and 2011 we saw the first ever zero COLA years since the automatic adjustment was first put in place in 1972. That dark period of time actually resulted in two years in a row with zero COLAs, after 38 years of increasing adjustments. Why? The Cost of Living Adjustment (COLA) is based upon the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.  If this factor increases year-over-year, then a COLA can be applied to Social Security benefits. This is an automatic adjustment, no action is required of Congress to produce the increase when there is one.  See How Social Security COLAs Are Calculated for details on the calculations. When […]

## Social Security Bend Points for 2014

When the Social Security Administration announced the Cost of Living Adjustment (COLA) for 2014, this also allowed for calculation of the bend points for 2014. Bend points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series.  They’re called bend points because they represent points on a graph of your AIME graphed by inclusion in calculating the PIA. If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA.  Here, however, we’ll go over how Bend Points are calculated each year.  To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis.  According to the AWI Series, in […]

## Social Security Figures Increase for 2014

Recently the Social Security Administration released the updated figures for 2014, including the wage base, earnings limits, and the increase to benefits. For 2014, the wage base for Social Security will rise to \$117,000.  This is the maximum amount of W2 wages that are subject to the 6.2% employer- and employee-paid Social Security tax.  This amount represents an increase of \$3,300 over the wage base of \$113,700 in 2013. In addition to that increase, benefits to eligible recipients of Social Security retirement will increase by 1.5% in 2014.  This is slightly less than the 1.7% increase to benefits in 2013.  This brings the average monthly benefit for all retired workers up by \$19, to\$1,294 in 2014.  For the average couple who are both receiving Social Security benefits, the COLA increase is \$31 per month, for an average benefit of \$2,111 in 2014. Likewise, there was an increase announced to the […]

## Social Security Bend Points in 2013

When the Social Security Administration announced the Cost of Living Adjustment (COLA) for 2013, this also allowed for calculation of the bend points for 2013. Bend points are the portions of your average income (Average Indexed Monthly Earnings – AIME) in specific dollar amounts that are indexed each year, based upon an obscure table called the Average Wage Index (AWI) Series.  They’re called bend points because they represent points on a graph of your AIME graphed by inclusion in calculating the PIA. If you’re interested in how Bend Points are used, you can see the article on Primary Insurance Amount, or PIA.  Here, however, we’ll go over how Bend Points are calculated each year.  To understand this calculation, you need to go back to 1979, the year of the Three Mile Island disaster, the introduction of the compact disc and the Iranian hostage crisis.  According to the AWI Series, in […]

## How is the Maximum Social Security Benefit Calculated?

Each year when the Social Security Administration announces the Cost Of Living Adjustment to benefits for the coming year, with similar ballyhoo they announce the maximum benefit amount available for the coming year.  For 2013, the maximum Social Security benefit for someone reaching Full Retirement Age (FRA) in that year will be \$2,533, an increase of \$20 over 2012. In the wake of these announcements a couple of weeks ago, a reader (thanks, DS!) sent me a question: Why is it that the maximum Social Security benefit only increased from \$2,513 to \$2,533?  This is only an increase of 0.8%, while the COLA increase indicated that benefits would climb by 1.7%? This is a drawn out and complicated situation to explain, but I think it’s important to fully understand.  First, you have to realize that when the Social Security folks publish this maximum amount, they are talking specifically about someone […]

## 2013 COLA for Social Security is Set

The increase to Social Security retirement benefits for calendar year 2013 has been announced at 1.7%.  Much ballyhoo has been made about the fact that this is one of the smallest increases in history, following the 3.6% increase at the beginning of 2012.  This is actually an increase of more than the average that was received with the most recent increase, since there was no increase at all between from the beginning of 2009 until the beginning of 2012.  So the average increase over the past three years was 1.2%. Inflation has been extremely low over period, so this small increase is not unexpected.  Medicare premiums are also expected to increase, which likely will wipe out approximately half of the Cost-of-Living Adjustment.

## When to File For Social Security Benefits

Image via Wikipedia All future Social Security recipients face this question at some point:  When should I file for benefits? As you are likely aware, age 62 is the earliest that you can file for benefits.  By filing at this age, you will begin receiving your benefit at a reduced amount – perhaps as much as 30% reduced. Waiting to file until your Full Retirement Age (FRA) will allow you to receive the full benefit amount, without reductions.  You could also wait until age 70 to file for benefits, which would result in an overall increase to your monthly benefit amount, by as much as 32% in some cases.  Granted, you will have foregone several years’ worth of payments if you wait to file at some age later than 62, but on average, it all works out about the same (with a few exceptions). The way that these reductions and […]

## 2012 Retirement Plan Limits

Image via Wikipedia The new limits for retirement plans in 2012 have just recently been published.  The details of these new limits are below: IRA The contribution limit (and therefore the deductible contribution limit) for a traditional IRA remains the same in 2012 as in 2011 – at \$5,000.  The catch up provision, available to taxpayers age 50 or better, also remains the same at \$1,000. If you’re a Single filer and covered by a retirement plan via an employer, the deductibility phases out when your Adjusted Gross Income (AGI) is over \$58,000 and phases out completely at an AGI of \$68,000.  This is an increase of \$2,000 over the 2011 phase-out range. If you’re Married and filing jointly and the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is between \$92,000 and \$112,000, also up from 2011 by \$2,000. If you’re not […]

## Proposed Changes to the Inflation Index

Image by darkmatter via Flickr One of the many proposed changes that is being considered to help resolve the current budgetary issues is to change the index used to adjust Social Security benefits from the current method, using the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, to a much more conservative index known as the Chained Consumer Price Index for all Urban Consumers (or C-CPI-U).  (See this article on How Social Security COLAs are Calculated for more information.) Unfortunately, the reason behind making this is change is the fact that it will ultimately save money for the Social Security system, directly at the expense of the beneficiaries of that system.  Here’s what you can expect: As an example, the CPI-W indicates a year-over-year increase from June 2010 to June 2011 of 4.1%.  Over the same period, the C-CPI-U only shows an increase of 3.4%. This […]