Examining two important changes to Social Security

Social Security announced two recent changes: one relatively substantial, one not.

Both were generally expected.

First, the small change. The cost-of-living adjustment will increase about one-third of 1% next year.

That 0.3% increase will raise the average monthly Social Security benefit for more than 60 million Americans by about $4 to about $1,360, according to the Social Security Administration.

The small increase was mocked in some press reports, and if the increase weren’t small enough, some seniors will see it diluted even further by expected increases in Medicare Part B premiums, which are usually deducted from Social Security payments.

Last year, there was no increase. And for the three years before that, it hovered between 1.5% and 1.7%.

The Social Security Administration uses the broad Consumer Price Index inflation index as a base for its increases, and last year the CPI increased just 0.1%. The two years before that, it increased 1.6% and 1.5%.

So, though the COLA increases mirror the inflation rate, they still often create controversy because advocates for seniors argue that the goods and services tracked by the CPI don’t accurately reflect a retiree's true cost of living.

The bigger announced change is an increase in the maximum earnings subject to the Social Security tax to $127,200 from $118,500, beginning next month. Any part of a worker's salary above the threshold isn’t taxed for Social Security.

As such, it is a regressive tax hitting lower-income workers harder in percentage terms, though this rule change will make it slightly less so.

Raising this threshold had long been cited as one of the possible fixes to help the solvency of the federal program. Other options included increasing the tax rate and raising the full retirement age.

This story is part of a 30-30 series on Social Security. It was originally published on Oct. 18.

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