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Will my Social Security benefit increase next year?

October 30, 2012: 6:30 AM ET

Will Social Security get a raise in 2013? — Gary B.

The Social Security Administration just announced a cost of living adjustment (COLA) of 1.7% for 2013. The increases will take effect on Dec. 1, 2012 and will appear in benefit payments starting Jan 1, 2013.

The COLA allows Social Security benefits (as well as federal and military pensions) to keep pace with inflation so the buying power of those payments holds steady. "It's a way of ensuring that retirees can maintain a reasonable standard of living," says Cristina Martin Firvida, AARP's director of financial security and consumer affairs. These adjustments are calculated every year based on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), a monthly index that tracks the rise in cost of consumer goods and services in selected urban areas. It's often argued that the CPI-W does not fairly track cost-of-living increases specific to seniors, but that's the index that the government uses.

In 2010 and 2011, the Social Security Administration determined that there was no effective uptick in the CPI-W, and, accordingly, declined to implement a COLA. This year, by comparison, saw a COLA of 3.6%.

— Marc Mewshaw

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Posted in: Investing, Retirement, Taxes
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