After two years with no benefit increases, more than 60 million Social Security recipients will receive a 3.6 percent increase this year.

The 3.6 percent cost-of-living adjustment (COLA) will begin with benefits that nearly 55 million Social Security beneficiaries receive this month. Increased payments to more than eight million beneficiaries began on Dec. 30.

There was no COLA increase in 2010 or 2011 because inflation was too low, and those were the first two years without a COLA since the adoption of automatic increases in 1975.

Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year – July, August and September – with the same months in the previous year.

According to the Social Security Administration, most retirees rely on Social Security for a majority of their income, and many rely on it for more than 90 percent of their income.

Other changes taking effect in January each year are based on the increase in average wages. Based on that increase, the maximum amount of earning subject to the Social Security tax (taxable minimum) will increase to $110,100 from $106,800. Of the estimated 161 million workers who will pay Social Security taxes in 2012, about 10 million will pay higher taxes as a result of the increase in the taxable maximum, according to the Social Security Administration.

The Social Security Act provides for how the COLA is calculated, and information is online.

A fact sheet is available online, showing the effect of the various automatic adjustments, at: www.socialsecurity.gov/cola.

Information about Medicare, when announced, will be available online. For some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.

Information, www.Medicare.gov.

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