It's official: Social Security recipients are getting a 3.6 percent raise, thanks to an increase in the measurement of the cost of living.
My 65-year-old, grumpy, accountant husband doesn't think this is such great retirement planning news. He points out that Social Security recipients are faring better than savers. He says, "Normally, with 3.6 percent inflation, there would be increasing stock prices and no- to low-risk, short- to medium-term interest rates in the 5 percent to 6 percent range. But thanks to QE2 and the Fed, the low-growth economy and the potential for European debt defaults, stocks are down, and interest rates on 10-year Treasuries are well under 3 percent."
At the same time, Social Security taxes could rise to $6,826.82 next year from $4,485.60 this year -- a whopping $2,341.22 increase. This is because of two factors. As a result of today's announcement, maximum salary subject to Social Security tax is rising from $106,800 in 2011 to $110,100 in 2012. About 10 million wage earners will be affected, Social Security says.
Also, this year there has been a tax holiday for those who pay into Social Security -- a cut in the employee portion of the Social Security tax from 6.2 percent to 4.2 percent of pay. This will expire at the end of the year unless President Barack Obama's tax plan passes, but so far Congress hasn't been eager to vote that way.
American Institute for Economic Research Economist Polina Vlasenko says that while in the general economy guaranteed increases are very rare for both salaries and investments, the goal of Social Security is to maintain the value of the retirement benefits over time. In the case of this particular increase, Medicare recipients are likely to see no benefit because their Part B premium, which is subtracted from their Social Security, will be greater than their 3.6 percent raise.
By law, the contributions of recipients to Medicare must add up to 25 percent of the cost of the program (taxpayers pay the rest). Medicare doesn't announce its annual increase until November, but it is highly likely that it will be more than the amount most people will get in increased Social Security, Vlasenko says.
What the government gives, it also takes away.