Social Security increase coming in 2012

 After two years without an increase in benefits, 55 million Social Security recipients will finally get a raise next year.Experts project the increase will be about 3.5 percent. The Social Security Administration is scheduled to make it official Wednesday when the government releases an inflation measure that determines the annual cost-of-living adjustment, or COLA.

Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.5 percent increase would amount to an additional $38 a month, or about $455 a year.There was no COLA in 2010 or 2011 because inflation was too low. Those were the first two years without a COLA since automatic increases were adopted in 1975.

It's been a long two years for the millions of retirees and disabled people who have been struggling through the economic downturn, said Web Phillips of the National Committee to Preserve Social Security and Medicare.

"If you've been at the grocery store lately and remember what you used to pay for things, see what you're paying for things today," Phillips said. "The cost-of-living adjustment makes sure that the Social Security benefit that you qualify for when you retire or you become disabled continues to stay current with prices so that the buying power of your benefit does not decline over time."

Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.

Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.

"For people at that income level every dollar makes a difference, particularly coming in this economic downtown," said David Certner, legislative policy director for AARP. "None of them feel as if their cost of living was not increasing in the last couple of years."

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 — the months of July, August and September — with the same months in the previous year.

If consumer prices increase from year to year, Social Security recipients automatically get higher payments, starting the following January. If price changes are negative, the payments stay unchanged.

Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation in the past two years.

As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they can't get another increase until consumer prices exceed the levels measured in 2008.

So far this year, prices have been higher than in 2008, said Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass.Based on consumer prices in July and August, the COLA for 2012 would be about 3.5 percent. Vlasenko estimates the COLA will be from 3.5 percent to 3.7 percent.