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1.7 Percent: The 2013 COLA

Lower inflation figures translate into a lower rise for Social Security and pension beneficiaries

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You've got a 1.7 percent cost-of-living adjustment coming in 2013 if you're one of the country's 56 million Social Security beneficiaries — about $21 more a month if you're receiving the average benefit of $1,236, the Social Security Administration announced Tuesday.

AARP: "COLA critically important to beneficiaries."

Social Security Cola 2013

The same raise will apply to pensions for federal government retirees and most veterans.

The COLA, which will take effect Jan. 1, is less than half the 3.6 percent raise that beneficiaries pocketed for 2012. And the increase may be partially eaten up by higher Medicare premiums for 2013, which are set to be announced this month. Most Medicare recipients have their premiums deducted from their Social Security payments.

The increase will be too small to make much difference in the lives of millions of Americans who are struggling to get by in retirement.

"By the time I pay rent, utilities, put gas in my car, pay a few credit cards, I don't have anything left," says Clo Banks, 72, a retiree living solely on her Social Security benefit of about $1,300 a month. "This cost-of-living adjustment really isn't going to help any of us."

Banks had quadruple bypass surgery five years ago but can only afford to take half the dosage of the heart and blood pressure medication she's prescribed. She moved to Las Vegas about 11 years ago because it was cheaper than Los Angeles, where she'd been living for years.

Get in on the discussion: Join the AARP Politics - Current Event Group

Social Security COLAs are calculated annually at this time of year by using the Consumer Price Index for urban wage earners (known as the CPI-W) as a measure of inflation. The cost of goods and services in the third-quarter CPI is compared with the previous year's third quarter.

A small rise in inflation last year resulted in the higher 2012 adjustment, which was a welcome relief for tens of millions of people. It was the first time in two years that recipients got a raise. There was no adjustment in 2010 or 2011 because inflation was relatively flat.

Meanwhile, lawmakers on both sides of the aisle have been pushing for a different kind of inflation measure to be used to determine Social Security's COLAs.

It's known as the "chained CPI." Inflation grows more slowly using this formula because it assumes that people substitute cheaper products for more expensive ones — poultry for beef, for example — so their costs aren't rising as much. Result: lower COLAs.

Next: COLA keeps older Americans from falling into poverty. »

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Social Security expert Jonathan Peterson talks about his new book Social Security for Dummies.

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