A cost-of-living increase of 2 percent has been announced by the Social Security Administration. Approximately one in five Americans will receive the cost of living benefit in 2018 which is more than 70 million U. S. residents; these include Social Security recipients, disabled veterans and federal retirees. The COLA (Cost of Living Adjustment) of 2 percent is the biggest boost in benefits since 2012 and is based on a broad measure of consumer prices generated by the Bureau of Labor Statistics. The average monthly Social Security payment is $1,258 or about $15,000 a year. The increase will be approximately $25 a month for the average beneficiary. Additional current changes include the following:
(1) The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $128,700. (2) The earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954) will increase to $17,040. (We deduct $1 from benefits for each $2 earned over $17,040.) (3) The earnings limit for people turning 66 in 2018 will increase to $45,360. (We deduct $1 from benefits for each $3 earned over $45,360 until the month the worker turns age 66.) (4) There is no limit on earnings for workers who are “full” retirement age or older for the entire year.
History of Automatic Cost-Of-Living Adjustments (COLA) – 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.
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. Beginning in 1975, Social Security started automatic annual cost-of-living allowances. The change was enacted by legislation that ties COLAs to the annual increase in the CPI-W. The change means that inflation no longer drains value from Social Security benefits.