Weekly Commentary for January 9, 2012
Cost of living adjustments (COLA) for 2012. If you are already receiving Social Security, then you may be aware that monthly Social Security benefit checks for you and more than 60 million Americans increased by 3.6 percent for cost-of-living adjustments (COLA) for 2012. The estimated average monthly Social Security benefits payable to all retired workers starting this month will now be $1,229, up from $1,186. While this is good news for those already receiving Social Security, it is not as exciting for the nearly 10 million American workers who will now be paying higher Social Security taxes.
To pay for the COLA increase, the Social Security Administration (SSA) increased the maximum amount of earnings subject to Social Security tax by 2 percent to $110,100 for 2012 from $106,800 in 2011. This is the first automatic increase in Social Security benefits since 2009. There was no COLA in 2010 and 2011 because the Consumer Price Index for Urban Wage Earners and Clerical Workers for those years did not increase above the level of the third quarter of 2008, the last year a COLA was determined.
Social Security allows retirees to work and earn income while also receiving benefits. The benefits are reduced, however, for retirees below full retirement age (defined as 66 for people born in 1943 through 1954) who earn more than a certain amount. For 2011 tax returns, that amount was $14,160; for each $2 earned over that limit, benefits were reduced by $1. The earnings limit for 2012 has been increased to $14,640. At full retirement age, benefits are increased to account for the amount withheld earlier due to the earnings limit. However, if you wait until full retirement age to begin receiving Social Security benefits, your benefits are not subject to the earnings limit – so you can work and receive full benefits.
Changes to both Social Security benefits and taxes have a direct effect on retirement income and savings plans. Contact your personal financial advisor, Jordan Dechtman, at 303-741-9772, email him at Jordan@JordanDechtman.com or visit our website at Jordan Dechtman today for a review of your portfolio to see how these changes will affect your plans.