Social Security's Good News, Bad News: The Ticker

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By Paula Dwyer

Good news for the nearly 55 million Americans receiving Social Security benefits: They will get a 3.6 percent raise come January, the first cost-of-living adjustment in two years. Bad news for some 10 million workers making more than $106,800 a year: The amount of their wages subject to the payroll tax goes up in January to $110,000.

The increases come because inflation has pushed up living costs and wages. Some might wonder how that can be, given today's report from the Labor Department that the cost of living in the U.S. rose in September at the slowest pace in three months. The consumer-price index climbed 0.3 percent from August. Excluding the volatile costs of food and fuel, the so-called core inflation rate rose 0.1 percent, the smallest gain since March. That signals inflation is moderating, just as Federal Reserve officials predicted.

Here's what's going on. The September CPI is only one month's worth of data that goes into calculating the Social Security cost-of-living adjustment, which is also compiled by the Labor Department. The department starts with the average CPI reading for the third calendar quarter of the last year the adjustment was determined (which was 2008). That figure is then compared to the average CPI for the third calendar quarter of the current year. If the increase is at least 0.1 percent, there is an adjustment. But if the CPI increases by less than 0.05 percent, or if the CPI decreases, there is no adjustment.

Got it? If you want more detail, or a history of cost-of-living adjustments, visit the Social Security Administration's website here.

(Paula Dwyer is a member of the Bloomberg View editorial board.)

-0- Oct/19/2011 14:39 GMT