By Erik Wasson - 10/16/12 01:55 PM EDT
The Social Security Administration announced Tuesday that retirees will see only a 1.7 percent cost-of-living adjustment (COLA) in their benefits next year.
That amounts to a $21 per month increase for the average senior, a smaller bump than the 3.6 percent hike the 56 million recipients of Social Security saw in 2012. There were no increases in 2010 and 2011.
"While this modest increase will help, much of the COLA will be consumed by health care and prescription costs, which continually outpace inflation. Every day, retirees and other beneficiaries struggling to make ends meet still feel like they’re falling further behind," said AARP Executive Vice President Nancy LeaMond.
The announcement of the increase puts Social Security back into the spotlight as Congress considers changes as part of a deficit package in the coming months. The public is also weighing President Obama's and Mitt Romney’s approaches to entitlements ahead of the election.
One proposed change to Social Security, which operates from a trust fund separate from the general budget, would tend to lower the cost-of-living increases by changing the way inflation is calculated. Known as the chained consumer price index, the proposal was a feature of talks between Congress and the White House in 2011.
“In this difficult economic environment, with many Americans expecting to depend even more heavily on Social Security in the future, it is unfortunate that some on Capitol Hill continue to suggest making the COLA even smaller by changing the way it is calculated," LeaMond said.
“Seniors know all too well their living costs often far outpace the COLA increase, yet incredibly, many politicians are proposing a new formula that will erode this inflation protection even more,” said Max Richtman of the National Committee to Preserve Social Security and Medicare.
Liberal Democrats argue that all of Social Security’s problems — it's estimated the program will not be able to pay full benefits after 2033 — can be solved by raising the $113,700 cap on income subject to the payroll tax.
“It would be a shock to millions of seniors and disabled veterans to learn that some in Washington think their current COLAs are too generous,” said Sen. Bernie Sanders (I-Vt.).
Republicans oppose the increase as impinging on economic growth and have talked of raising the retirement age and means-testing benefits for the well-off. A GOP effort to convert the system into private accounts, spearheaded by vice presidential candidate Rep. Paul Ryan (R-Wis.), has been shelved after failing to gain traction in 2005.
Ryan and Romney's plan to convert Medicare into an optional premium support system has become a centerpiece of the presidential campaign, with Democrats arguing that premiums for seniors will go up massively once the change goes into effect.