Tens of millions of Americans receiving Social Security benefits are poised to see a 2.5% increase in their monthly checks next year to keep pace with inflation, the Social Security Administration said Thursday, an uptick that’s on a par with average annual increases in recent decades.
The average monthly benefit for retired workers is set to increase by $49 to $1,976 starting in January, up from the current average of $1,927. While retirees and their dependents account for a majority of the more than 72 million Social Security beneficiaries, millions of others will also see their checks go up, including disabled workers, survivors of deceased workers and people with low incomes, as part of the Supplemental Security Income program.
The cost-of-living adjustment, known as the COLA, is in line with the 2.6% average annual increase over the past 20 years, but it’s modestly lower than the 3.2% rise beneficiaries received this year.
Social Security calculates the adjustment using the Consumer Price Index for Urban Wage Earners and Clerical Workers, taking the average inflation readings from July, August and September of the current year and comparing them with the same period from a year earlier. But the index tracks a range of goods and services that are purchased primarily by younger working people, not by retirees.
The adjustment is often mostly eaten up by the increase in Medicare Part B premiums, which are automatically deducted from Social Security checks.
Social Security is largely funded through payroll taxes, which are split between employers and employees. This year, they each paid 6.2% of wages (self-employed workers paid 12.4%), up to a taxable maximum of $168,600. Next year, up to $176,100 of earnings will be subject to these taxes.
This article originally appeared in The New York Times.
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