SS Cola Apply to non-recipents?

[MC1550]

For those of us NOT taking SS at 62 - how does the recent SS Cola increase affect us down the road? In other words, will we see an increase in our expected payout when we access the SS web site next year?

I plan on taking SS at age 64 (in two years) and am wondering if this announcement will change what I am expected to receive.

 

[Tiger]

The Cola adjusted rate for 2012 becomes the permanent rate going forward. If there is another adjusted rate in January 2013 that will be what you receive when you retire in two years. If there is no increased rate in 2013 you will receive the new 2012 rate..

 

[rescueme]

Yes, it will.

If you use the on-line estimator, the files are updated the evening of the last day of the month, therefore run it on Jan 1, 2012 to see your new rates.

Estimate Your Retirement Benefits

BTW, if you are age 62 but have not filed for benefits, you can run the estimator every month and see your monthly rate increase from age 62 to age 66 (FRA age).

 

[thefinancebuff]

The recipient's COLA goes up by the CPI-W. The AIME and resulting PIA etc go up by the wage index. The two indexes don't go up by the same amount. 3.6% COLA this year for the recipients but only 3.1% increase in the wage index for non-recipients. Theoretically we can have high inflation due to non-labor input prices (think oil, metals) but wages are held down due to unemployment. Then recipients will get good COLA but non-recipients don't get as much.

 

[BLS53]

The recipient's COLA goes up by the CPI-W. The AIME and resulting PIA etc go up by the wage index. The two indexes don't go up by the same amount. 3.6% COLA this year for the recipients but only 3.1% increase in the wage index for non-recipients. Theoretically we can have high inflation due to non-labor input prices (think oil, metals) but wages are held down due to unemployment. Then recipients will get good COLA but non-recipients don't get as much.

Where are you getting the 3.1% for the wage index?

The SSA site is showing 2.36%:

Average Wage Index (AWI)

 

[73ss454]

The recipient's COLA goes up by the CPI-W. The AIME and resulting PIA etc go up by the wage index. The two indexes don't go up by the same amount. 3.6% COLA this year for the recipients but only 3.1% increase in the wage index for non-recipients. Theoretically we can have high inflation due to non-labor input prices (think oil, metals) but wages are held down due to unemployment. Then recipients will get good COLA but non-recipients don't get as much.

I'm 62 and 6 months and haven't taken SS as of yet. My plan is to take it in Dec. of 2012 when DW turns 62. Does the statement in the above quote mean that anyone not taking SS now will get less than if we took it at 62? Seems like the 3.6% will not apply.

 

[MC1550]

thanks for the responses on my original query. Now I wonder which is the correct amount. 2.36% or 3.1%?

 

[Brett_Cameron]

2.36% is the amount that average wages increased from 2009 to 2010. It is not the amount a person's PIA would increase. You have to use the PIA formula to determine how much the PIA would increase. For my case, just over 1% assuming no more wage income.

 

[BLS53]

thanks for the responses on my original query. Now I wonder which is the correct amount. 2.36% or 3.1%?

I would think the SSA site supersedes anything else. I would like to know where the 3.1% figure came from. Wish it was 3.1%

 

[BLS53]

2.36% is the amount that average wages increased from 2009 to 2010. It is not the amount a person's PIA would increase. You have to use the PIA formula to determine how much the PIA would increase. For my case, just over 1% assuming no more wage income.

I haven't worked in years, and my estimated benefit amount on the SSA site, always matches up exactly with the annual AWI percent change, when I figure the benefit amount manually. I've never included PIA in the calculation.

 

[Brett_Cameron]

I haven't worked in years, and my estimated benefit amount on the SSA site, always matches up exactly with the annual AWI percent change, when I figure the benefit amount manually. I've never included PIA in the calculation.

Your results are consistent with the PIA formula as are mine.

 

[meierlde]

Note that the bend points in the formula also move a bit the lower from 749/month to 767 and the upper moving from4517 to 4624 This is how one gets the 2.36% bump. Note that this is a bit higher than the 2010 and the numbers actually went down for 2011.

 

[BLS53]

Your results are consistent with the PIA formula as are mine.

OK, we're good then. You did raise my curiosity though. I went to this page:

Primary Insurance Amount

Best I can figure the PIA is constantly changing during your working years, and they use all those "bend points" to come up with a benefit amount. Once you stop working prior to age 62, the PIA becomes a fixed number that is multiplied by the AWI every year. Now you can go through the ordeal of figuring your lifetime earnings and the bend points every year, and multiplying by the AWI. But there's really no need to do that when you can just take the current year's estimated benefit and multiply by the AWI, to get the new estimate.

Easiest way is just to wait until Jan. 1, and the SSA website estimator will do it for you. I like to do it myself when the numbers come out in Oct., just to see what I come up with.

 

[Brett_Cameron]

OK, we're good then. You did raise my curiosity though. I went to this page:

Primary Insurance Amount

Best I can figure the PIA is constantly changing during your working years, and they use all those "bend points" to come up with a benefit amount. Once you stop working prior to age 62, the PIA becomes a fixed number that is multiplied by the AWI every year. Now you can go through the ordeal of figuring your lifetime earnings and the bend points every year, and multiplying by the AWI. But there's really no need to do that when you can just take the current year's estimated benefit and multiply by the AWI, to get the new estimate.

Easiest way is just to wait until Jan. 1, and the SSA website estimator will do it for you. I like to do it myself when the numbers come out in Oct., just to see what I come up with.

Yes, that is what I have found. I created a spreadsheet with my earnings history and all I do is update the latest average earnings and the bend points. Playing with this it seems that after not having any taxable social security earnings for a few years the increase in PIA from year to year converges to the increase in average wages.

 

[thefinancebuff]

Where are you getting the 3.1% for the wage index?

The SSA site is showing 2.36%:

Average Wage Index (AWI)

When they add a new row for 2011, it will show 3.1%. The wage base will go up from 106,800 to 110,100. That's a 3.1% increase due to AWI.

 

[BLS53]

When they add a new row for 2011, it will show 3.1%. The wage base will go up from 106,800 to 110,100. That's a 3.1% increase due to AWI.

Sorry but that's incorrect. The AWI always lags 2 years behind the COLA. The 2012 COLA announcement coincides with the 2010 AWI publication. If you look at the bottom of the AWI page, it says "last reviewed or modified October 19, 2011". It's only updated once a year. And if you would have looked at it last month, the latest entry in the table, would have been the -1.51% for 2009.

Now, maybe you have the numbers for the 2011 AWI, and the SSA is just keeping it a secret until next year. If that is the case, some of us would like to have links to those tables and formulas, replete with back dating to previous years for cross verification with official SSA data.

For starters, lead us through the calculation of the 3.1%.

 

[haha]

The recipient's COLA goes up by the CPI-W. The AIME and resulting PIA etc go up by the wage index.

Older non-recipients also have their expected payment adjusted by the CPI-W. I don't remember what age I was, perhaps 60, perhaps 62, when I noticed that my annual statement was being adjusted differently. I was not yet drawing SS. At that time, CPI usually lagged workers' wage index.

Ha

 

[BLS53]

Investigating further, I see what you're doing. You're confusing the wage base for maximum earnings on which FICA taxes are paid, with the AWI. They're two separate calculations, which have nothing to do with one another.

Compare these two tables:

Contribution and Benefit Base

Average Wage Index (AWI)

You will find little correlation between the two, as far as percent changes from year to year.

The AWI is used to adjust the PIA. The wage base is used to adjust the maximum annual earnings on which FICA taxes are paid. The only common ground is they're both calculated by the SSA, are a measurement of income, and tend to go up every year. Wage base has nothing to do with estimating benefits.

 

[BLS53]

Older non-recipients also have their expected payment adjusted by the CPI-W. I don't remember what age I was, perhaps 60, perhaps 62, when I noticed that my annual statement was being adjusted differently. I was not yet drawing SS. At that time, CPI usually lagged workers' wage index.

Ha

It shifts to COLA at age 62.

 

[thefinancebuff]

Investigating further, I see what you're doing. You're confusing the wage base for maximum earnings on which FICA taxes are paid, with the AWI. They're two separate calculations, which have nothing to do with one another.

From the first paragraph of the wage base page:

Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program limits the amount of earnings subject to taxation for a given year. The same annual limit also applies when those earnings are used in a benefit computation. This limit changes each year with changes in the national average wage index. We call this annual limit the contribution and benefit base. For earnings in 2012, this base is $110,100.

So it seems they do have something to do with one another.

Here's the law:

http://www.ssa.gov/OP_Home/ssact/title02/0230.htm

The formula is basically:

wage base for next year = AWI for previous year / AWI for 1992 * 60,600

Then there's some rounding to nearest $300.

The formula works quite well between 2003 and 2009 (using AWI 2001-2007) but it breaks down in 2010. According to the formula the wage base should go up to $109,200 but it was held constant at $106,800. Same for 2011. Maybe it has something to do with no COLA in those two years. So the "wrong" wage base threw me off.

 

[BLS53]

From the first paragraph of the wage base page:

So it seems they do have something to do with one another.

Here's the law:

Social Security Act §230

The formula is basically:

wage base for next year = AWI for previous year / AWI for 1992 * 60,600

Then there's some rounding to nearest $300.

The formula works quite well between 2003 and 2009 (using AWI 2001-2007) but it breaks down in 2010. According to the formula the wage base should go up to $109,200 but it was held constant at $106,800. Same for 2011. Maybe it has something to do with no COLA in those two years. So the "wrong" wage base threw me off.

You can believe whatever you want to believe, and perhaps you do have some convoluted method for making the numbers come out even.

I just want to emphasize that the only percent changes that matter, are the ones listed in the AWI table. And they're only updated in October. You won't see a figure for 2011 until next October. If it turns out to be 3.1%, then you must be either a math wizard or a fortune teller.

The most up to date AWI is for 2010, and it's 2.36%. Any figures for the 2011 AWI are strictly speculative. Between now and January 1, all future SS recipients who are under 62, and have no new earnings, should multiply their current benefit estimate by 2.36%. Save that result until January, and then get a new estimate off the SSA site. The numbers will match-up. I've been doing it since SSA started a website, and it's never been wrong.

 

[thefinancebuff]

I've been doing it since SSA started a website, and it's never been wrong.

You are correct. It is 2.36%. Sorry about the confusion. I explained what threw me off. Perhaps you didn't read?