Q:

How does the government determine how much to increase Social Security each year?

A:

Quick Answer

Social Security general benefits increases are based on changes in the cost of living determined by the Consumer Price Index. Increases were indexed to the Consumer Price Index in 1975, and the Social Security Administration website contains a table with the year-to-year increases since that time.

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How does the government determine how much to increase Social Security each year?
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Full Answer

Cost of living adjustments are anchored to the primary insurance amount that is directly related to the beneficiaries earnings determined when the earner turns 62 and becomes eligible for full retirement benefits. There are bend points in the primary insurance amount calculations that change, based on a formula, over time.

For individuals who become eligible for benefits, as of 2015, the primary insurance amount is formulated as 90 percent of the first $826 of his average indexed monthly earnings, plus 32 percent of his average indexed monthly earnings over $826 and through $4,980, and 15 percent of his average indexed monthly earnings over $4,980.

For example, an individual who is eligible for full benefits in 2015 and earned an average of $10,000 per month has a primary insurance amount of $2,816.60, based on the formula. The cost of living adjustment is added to that number and a new primary insurance amount is determined; the next increase will be based on the new primary insurance amount.

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