2014 COLA to rise 1.5 percent

Wednesday - 10/30/2013, 7:02am EDT

(This story will continue to be updated as more information becomes available.)

The Social Security Administration announced Wednesday morning that the cost-of- living adjustment, or COLA, will rise 1.5 percent in 2014.

The increase is among the smallest since automatic adjustments were adopted in 1975.

The COLA affects benefits for more than one-fifth of the country, including millions of disabled veterans, federal retirees and people who get Supplemental Security Income, the disability program for the poor.

The announcement had been scheduled for two weeks ago. It was delayed because the Bureau of Labor Statistics did not issue the inflation report for September during the partial government shutdown.

Since 1975, annual Social Security raises have averaged just over 4 percent. Next year will mark only the seventh time the COLA has been less than 2 percent, including three of the past five years. This year's increase was 1.7 percent. There was no COLA in 2010 or 2011 because inflation was too low.

The COLA is based on a government measure of inflation that was also released Wednesday. The 2014 increase is small because consumer prices, as measured by the government, haven't gone up much in the past year.

The relatively low increase is prompting some federal retiree groups to speak out against the chained CPI formula for calculating the COLA.

"The announcement is a reminder that our method for calculating the rising cost of goods and services is out of sync with the reality faced by millions of federal retirees, Social Security recipients and military retirees, who spend more than twice as much on medical care than the population measured by the CPI-W formula," Joseph A. Beaudoin, president of the National Active and Retired Federal Employees Association said in a statement. "While the present formula isn't perfect, a proposed switch to the Chained CPI would only make a bad situation worse."

By law, the cost-of-living adjustment is based on the consumer price index for urban wage earners and clerical workers, a broad measure of consumer prices generated by the Bureau of Labor Statistics. It measures price changes for food, housing, clothing, transportation, energy, medical care, recreation and education.

The COLA is calculated by comparing consumer prices in July, August and September each year to prices in the same three months from the previous year. If prices go up over the course of the year, benefits go up, starting with payments delivered in January.

In some years, part of COLA has been erased by an increase in Medicare Part B premiums, which are deducted automatically from Social Security payments. But Medicare announced Monday that Part B premiums, which cover doctor visits, will stay the same in 2014, at $104.90 a month for most seniors.

The report from BLS reveals gasoline prices are down 2.4 percent from a year ago, while food prices are up slightly. Housing costs, meanwhile, went up 2.3 percent, and utilities increased by 3.2 percent.

Medical costs went up less than in previous years but still outpaced some other consumer prices, rising 2.5 percent.

"As members of Congress continue to negotiate a budget, I urge them to consider the CPI-E formula, a more accurate measure of inflation that accounts for health care and other costs facing seniors," Beaudoin said in the statement.

Beginning in January, the maximum amount of earnings subject to the Social Security tax will increase to $117,000 from $113,700. Of the estimated 165 million workers who will pay Social Security taxes in 2014, about 10 million will pay higher taxes as a result of the increase in the taxable maximum.

The Associated Press contributed to this report.