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The 2013 Social Security Cost-of-Living Adjustment

Written by Nickel - 12 Comments

According to the Social Security Administration, Social Security benefits will rise by just 1.7% in 2013. This is less than half of the 3.6% cost of living adjustment in 2012, though infinitely higher than the 0% increase in 2010 and 2011.

For those of you that are still working, this means that the Social Security ceiling is also increasing. The ceiling currently stands at $110,100 and will rise to $113,700 in 2013.

In other words… The first $113,700 that you earn will be subject to Social Security taxes (FICA-OASDI). After that, you will pay only the medicare portion (FICA-HI).

And, of course, the Social Security payroll tax is expected to increase further (from 4.2% to 6.2% on the employee portion) due to the impending lapse of the so-called “payroll tax holiday“.

What do you think about these increases? Too much? Not enough?

Published on October 16th, 2012 - 12 Comments
Filed under: Retirement, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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12 Responses to “The 2013 Social Security Cost-of-Living Adjustment”

  1. 1
    Jonathan Says:

    Meh, I’m a 29 year old paying 12% of my salary for the promise of benefits made by prior generations, that will more than likely cease to exist when I’m 67.

    Personally, I’d love to opt out of the system all together and manage the forgone 12% myself.

    Entitlements, robbing grandchildren to pay grandparents, thanks grandpa!

  2. 2
    Stu Says:

    Jonathan wrote: “Personally, I’d love to opt out of the system all together and manage the forgone 12% myself.”

    Clicking through to his web site shows that he is a financial analyst and definitely knows the time value of money. So maybe I ought not argue the point.

    I used to think that too when I was in my 20s and 30s. I figured I could beat the market enough to make it worth my while to invest that myself.

    But over time I’ve come to the conclusion that the “average” (actually median) investor will, over the long run, make less than market “average” (total returns/total number of investors) returns. The reason for that is that returns do not follow a normal distribution, a few people do very, very well and they boost the average but not the median.

    And most people are more interested in living their lives, being teachers, plumbers, architects, engineers, than being investment gurus. Chances of them making an “average” return, especially with the high expense ratio funds offered in a typical 401k, are pretty small.

    But now that I’m staring retirement age in the face I realize that Social Security is really just an inflation adjusted annuity that sets a level of income support at just around the poverty level.

    It is actually a pretty good deal for all involved as there is no 20% or so taken off the top of the premiums to pay Wall Street as profits. Try pricing out an equivalent package from a for profit insurance company to see what I mean.

    Yes, there need to be tweaks to assure solvency. Maybe raise the income ceiling a little. Maybe change the way payments are adjusted for inflation. But the tweaks required to assure solvency are actually quite modest and there is time to address them.

    The next item to consider: IRA and 401k plans and their like expose the individual to longevity risk. Annuity insurance plans like SS help protect against that, basically the people who die before their life expectancy age contribute to those who live past it. Individual investment plans of any type will not do that.

    I’ve done a lot of Monte Carlo simulations for my retirement and without that base level of SS income the couple of million that we’ve saved might not last to age 100 (most of our ancestors lived long lives and we need to assume in our planning we will too).

  3. 3
    Jonathan Says:

    You have great points Stu; although, I’d still opt out, annuities expose you to counter-party and tail end risks that will crush you if they ever came to fruition. After all, a contract is only as good as the party making the promise.

    Bottom line, I don’t need the government telling me what to do with my money, nor do I feel I need to give my money to another individual who didn’t mind to save enough for retirement.

    Thanks uncle Sam, for signing a jointly and severally liable contract, in my name before I was even born, for everyone else’s retirement solvency.

    My generation will be the first generation that is worse of than the prior due to such entitlements.

  4. 4
    BG Says:

    How about you pay for your own, and I pay for mine. Total agreement with Justin on the BS that is Social Security: prior generations made it their retirement plan that I pay for them.

  5. 5
    Indian Says:

    I’m an immigrant from India. They don’t have any of this nonsense like Social Security or Medicare or infrastructure spending or anything there. Everyone should move there. Have fun fending for yourself!

  6. 6
    Funny about Money Says:

    So… Are all you SS haters ready to support your parents in their dotage?

    Do you realize what it costs to care for an elderly adult who no longer can work, no longer can cover basic expenses, and no longer can even take care of him- or herself around the house? Or what it will cost if you or a spouse has to quit work to care for a parent? Presumably you and your spouse have four parents between you, and so you might want to contemplate what FOUR TIMES the cost of supporting one parent will mean for your own finances. And how much you’ll enjoy sharing space in your home with them when they can no longer afford to stay in their own places.

    Or maybe you intend to let them starve. Be evicted from their paid-off homes for nonpayment of property taxes and take up residence under the freeway overpass. After all, what did your parents ever do for you?

  7. 7
    BG Says:

    #6 Funny about money) There is a difference between helping the sick and the poor, and “helping” someone who admits they have “a couple million saved”.

    Means test the SS benefits and lower the tax rates, and I might (MIGHT) support the SS wealth transfer system.

  8. 8
    Jonathan Says:

    @funnyaboutmoney

    Some people have parents that were wise enough to save for their own retirement.

    I don’t know your parents personal situation, but am I personally beholden to them if they weren’t as responsible as mine? And if so, why?

    I don’t recall signing a contract making me liable for their retirement.

    @indian

    False analogy much? Nice try though.

  9. 9
    BG Says:

    Jonathan) The contract was signed the instant you (or your parents) signed you up for a Social Security number.

    Unfortunately, you can’t legally work in the USA without that number/contract wrung around your neck.

    Of course I use the word “contract” loosely, as the only given in the contract is that you have to shell out rediculous FICA payments (taxes) during your working years.

    There is zero gaurantee that you get a single penny out of the system/contract (see SCOTUS 1960: Flemming -vs- Nestor). If it weren’t for that Supreme Court decision, then I’d be tempted to compare it to an annuity as Stu did.

  10. 10
    Jonathan Says:

    @BG

    Exactly, did I consent or was it done under duress? If I can’t explicitly opt out of a contract that was signed without a meeting of the minds, I’d say that qualifies for duress.

    Now that I’m old enough to understand what my parents “signed me up for” the moment I was born, I no longer want to be a part of it. Unfortunately, withdrawing said consent, that I never offered to begin with, isn’t an option.

  11. 11
    Mike Says:

    Johnathon, I worked my whole life and did the best I could to save. But the average wage in my day was less then $2 an hour. You are young and things look so different now then they will when you reach my age. The real problem is that the government thought there was TOO much money in the SS account a few years back and allowed large non repayable loans to big bussiness. Why should your grand parents suffer just to give you your 12%. If they were like many of us that worked at labor jobs (today not many can do much more then work a PC). You sound like most of todays spoiled socity. I do think you should be able to opt out………with the condition that you can NEVER recieve any type of help from the government including loans…school of housing assist…If you want to be on your own they should cut all tyes……….many big money makers are on the street today…maybe you can join them someday.

  12. 12
    Mike Says:

    Johnathon….one more thing………..you do not have to live here. Move to another country!!!! Maybe they can pamper your Ass…ets

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