According to the Social Security Administration, on October 16, 2012:
Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 62 million Americans will increase 1.7 percent in 2013.
The 1.7 percent cost-of-living adjustment (COLA) will begin with benefits that more than 56 million Social Security beneficiaries receive in January 2013. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2012.
Congress enacted the COLA provision as part of the 1972 Social Security Amendments, and automatic annual COLAs began in 1975. Before that, benefits were increased only when Congress enacted special legislation.
The purpose of the COLA is to ensure that the purchasing power of Social Security and Supplemental Security Income (SSI) benefits is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
The CPI-W is determined by the Bureau of Labor Statistics in the Department of Labor. By law, it is the official measure used by the Social Security Administration to calculate COLAs.
Based on the increase in average wages, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $113,700 from $110,100
The earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954) will be $15,120. (We deduct $1 from benefits for each $2 earned over $15,120.)
The earnings limit for people turning 66 in 2013 will be $40,080. (We deduct $1 from benefits for each $3 earned over $40,080 until the month the worker turns age 66.) There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
Information about Medicare changes for 2013, when announced, will be available at www.Medicare.gov. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.