Social Security recipients will get a 1.7 percent raise Jan. 1, Social Security announced Tuesday morning.
That's about four-tenths of a percentage point higher than the best-guess estimates had put it. That's still not a whopper of an increase, but for most people living in retirement, more is better than less. Because these increases are cumulative, it is also good retirement planning news for people a few years away from claiming.
Here's how the increase will affect various aspects of the program.
The maximum amount on which workers are taxed for Social Security will go from $110,100 to $113,700. There is no upper limit on the amount of income taxed for Medicare. Unless Congress renews the Temporary Payroll Tax Cut Continuation Act of 2011, which gave the payroll tax a 2 percent haircut, in 2013 taxes for employees will go back to 7.65 percent of income. Self-employed people pay both the worker and the employer share for a whopping total of 15.3 percent.
The amount you must earn to be credited with one quarter of Social Security coverage -- you need 40 quarters or 10 years of work to qualify for retirement benefits -- will rise to $1,160.
The cost of living adjustment will drive up the average amount that Social Security recipients receive in 2013 to these levels:
- All retired workers, $1,261.
- Aged couple, both receiving benefits, $2,048.
- Widowed mother and two children, $2,592.
- Aged widow(er) alone, $1,214.
- Disabled worker, spouse and one or more children, $1,919.
- All disabled workers, $1,132.
The amount that a worker who has worked for 35 years, earning the maximum amount of Social Security every year, can receive at full retirement age -- 66 in 2013 -- is $2,533.
If you take Social Security before full retirement age -- between the ages of 62 and 65 -- there is a limit on the amount of payroll income you can earn without losing $1 of Social Security for every $2 of income. That cap rises in 2013 to $15,120 a year.
If you work the year you reach full retirement age, you can earn quite a bit more before switching over to Social Security. That maximum is $40,080. After that, $1 in benefits will be withheld for every $3 in earnings above the limit.
Social Security is a blessing for so many people -- especially at a time when an increasing number of retirees have no pension on which to rely.