Social Security confirmed today that the average cost of living adjustment, or COLA, will be 1.5 percent in 2014 -- one of the lowest increases since the program was first adjusted for inflation in 1975.
To put this in perspective: In 1987 and 1999, the COLA was only 1.3 percent. There was no adjustment in either 2010 or 2011. The largest adjustment was in July 1980, when inflation drove up benefits 14.3 percent.
The average Social Security payment for an individual will rise $19 a month from $1,275 to $1,294. The average couple will get $31 more, their benefit rising from $2,080 to $2,111.
In some years, the Social Security increase brought about by the COLA was eaten up by an increase in Medicare Part B, which automatically is subtracted from most people's Social Security payments. In 2014, Medicare Part B, which covers doctor's office visits, won't rise from its current level of $104.90. That's good retirement planning news.
If you are strictly on the paying end of this and not yet ready for retirement, maximum taxable earnings on which Social Security payroll taxes are levied will rise in 2014 to $117,000, up from $113,700 in 2013. To qualify for Social Security, you must work a total of 40 quarters, earning at least $1,200 a quarter in 2014, up from $1,160 in 2013.
If you are between 62 and full retirement age -- 66 for people turning 62 in 2014 -- and you continue to work while claiming, you will have to pay back a portion of your Social Security payments if you earn more than $15,480 in 2014. That's up from $15,120 a year in 2013. The year that you reach full retirement age, you can earn as much as $41,400 without penalty, an increase of $1,320 from 2013.
The COLA also affects benefits for federal government retirees, disabled veterans and people who get Supplemental Security Income, the disability program for the poor.
Opposition to proposed COLA changes
Many organizations supporting improvements to Social Security are using today's announcement as an opportunity to explain why they think this year's COLA is unfair to middle-income people who are dependent on the program. They are particularly opposed to proposals to adopt the Chained Consumer Price Index, or Chained CPI, which would further reduce Social Security COLAs. A poll released by Democracy for America says that people across the political spectrum reject the Chained CPI, with 74 percent opposing it in red states like Kentucky; 64 percent against it in blue states like Hawaii; and 70 percent opposing it in swing or purple states like Iowa.
Another survey by the Senior Citizens League says that more than 78 percent of people older than 65 either favor, or somewhat favor, requiring workers with incomes higher than $117,000 in 2014 to pay Social Security taxes on all of their wages. If that were the case -- and people making more than $117,000 received no additional benefit from their additional taxes, the Social Security's Office of the Chief Actuary says the deficit would disappear. If there were no maximum earnings cap and additional benefits were paid to high earners, about 43 percent of the shortfall would be eliminated.
If we raised the cap on Social Security taxable income, how much -- if any -- additional Social Security benefits should be allocated to people who earn more than $117,000 a year? Or should this be a straight tax increase with no benefit increase to high earners?