retirement-blog-social-security-administration-building

Social Security announced this morning that the annual cost of living, or COLA, increase for 2015 will be 1.7 percent. For the average Social Security recipient, that is a monthly increase of about $22.20, bringing the payment to about $1,328 per month or $15,938 a year in 2015. The average benefit  for a married couple will rise $36.38 to about $2,176 a month or $26,117 per year. The maximum Social Security benefit available at full retirement age to someone with a lifetime of high earnings will be $2,663 per month or $31,956 a year in 2015.

The relatively small increase in 2015 reflects the continued slow growth of the economy. It is based on the increase in the CPI-W, the Consumer Price Index for Urban Wage Earners and Clerical Workers, from the third quarter of 2013 through the third quarter of 2014.  It measures changes in the prices of goods and services, such as food, housing, clothing, transportation, energy, medical care, recreation and education. An annual cost of living adjustment was instituted in 1975 when inflation was high. The highest increase ever given — 14.3 percent — was in 1980. Since the bottom fell out of the economy in 2007, cost of living adjustments have been modest, and in 2010 and 2011 there were none.

How our social programs are funded

Social Security and Medicare are paid for by a 7.65 percent tax levied on both workers and employers. Self-employed people pay both — a total of 15.3 percent. The amount of income on which the Social Security portion of the tax is levied is also affected by the COLA. So the income subject to tax will increase from $117,000 to $118,500 beginning in January 2015. This will affect about 10 million of the 168 million workers who will pay Social Security taxes next year, according to the Social Security Administration.

The Medicare portion of the tax is 1.45 percent on all earnings. People with earned income of more than $200,000 ($250,000 for married couples filing jointly) pay an additional 0.9 percent in Medicare taxes on the income above those thresholds.

It requires 10 years or 40 quarters of work to qualify for Social Security. A worker will have to earn a minimum of $1,220 a quarter in 2015 to get a Social Security earnings credit.

If you claim Social Security early, between ages 62 and the current full retirement age of 66, but you continue to work, in 2015, you’ll be able to earn $15,720 per year or $1,310 per month without penalty. After that, Social Security will reduce your benefit by $1 for every $2 you make above the limit. The year in which you reach full retirement age, you can earn $41,880 per year or $3,490 per month without penalty. This restriction only applies during the months prior to attaining full retirement age, when $1 in benefits will be withheld for every $3 in earnings above that limit. Once you reach full retirement age, there is no limit on how much you can earn.

If you are receiving Social Security disability, the amount that you can earn while continuing to receive benefits will rise in 2015 to $1,090 per month unless you are blind. Then you can make $1,820.

The Part B cost of Medicare, which is subtracted from Social Security recipients’ monthly payments, will be unchanged at $104.90 a month.

The COLA also affects disabled veterans, federal retirees and their survivors, and people who get Supplemental Security Income, the federal disability and old-age program for those who don’t qualify under Social Security.