What's Happening to Social Security Next Year?

Treasury checks If you're receiving Social Security benefits, your check will rise by 1.7% in 2013, thanks to that program's most recent annual cost-of-living adjustment. The average monthly benefit check to a retiree will increase from around $1,240 to $1,261 -- an increase of $21 per month, or $0.70 per day.

If, on the other hand, you're still working and paying into Social Security, your taxes are going up next year. For all workers who pay into the system, the temporary 2% payroll tax holiday is expected to expire, so Social Security taxes will eat an additional 2% of much, if not all, of your income. The amount of income that the payroll tax reaches is rising, as well -- to $113,700 from $110,100.

Higher Taxes, Lower Real Benefits

That 1.7% benefit increase is based on the official CPI-W inflation number, the version of the Consumer Price Index that measures inflation on "urban wage earners and clerical workers." While it's a decent proxy for the costs those working folks face, it doesn't completely cover the increases in health care costs that seniors typically see. Not only that, but once Medicare and supplemental insurance programs adjust their premiums later this year, even that modest increase could partially or completely vanish to cover those premium hikes.

Or in other words, if you're relying on Social Security, your benefits are falling behind your cost increases in very real terms, even if the check you receive winds up a tiny bit larger. And unfortunately, even the increase in the tax rate people pay will do little toward stopping the pending collapse of Social Security's Trust Fund.

That's because the money from the 2% payroll tax rollback that would have otherwise gone "missing" was made up through transfers from the Treasury's General Fund. So all that the end of the 2% rollback means is that the Treasury's other debt won't grow quite as fast.

What Can You Do About It?

If you're completely dependent on Social Security, there's little you can do aside from tightening your belt by looking for more aggressive ways to cut your costs. If you're not yet retired, though, or if you've retired recently enough so that you're still able to work, drawing a paycheck can help make up that real gap in several ways.

For one thing, Social Security takes your 35 highest earning years into account when determining your benefits. Add another year or two worth of earnings, especially if they replace years when you earned little or nothing, and your benefits will increase accordingly. For another, the later you wait before tapping Social Security -- up until age 70 -- the larger your benefit check will be. And finally, you can invest some of your paycheck now in order to have a larger buffer to cover your retirement expenses later.

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And of course, there's also the very real fact that every year you delay retiring is one fewer year that both Social Security and your personal portfolio need to support you in retirement. Being able to work to cover that program's gaps in real payments will very likely be a critical part of your future income plan. That's especially true if, like most of us, your nest egg hasn't reached the point where you're able to retire comfortably no matter what happens to Social Security.

Regardless of how you choose to prepare yourself for both the short- and long-term pain from Social Security, making the right financial decisions today makes a world of difference in your golden years. Don't make the same mistakes as the masses who mistakenly believe that their Social Security check will be all they need. Learn more by reading "The Shocking Can't-Miss Truth about Your Retirement" free report.

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Obamacare's Reach - Which States Will Benefit the Most and Least
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What's Happening to Social Security Next Year?

According to a study conducted by the Department of Health and Human Services and the nonpartisan Henry J. Kaiser Family Foundation, Kentucky will be the biggest winner in the proposed Medicaid expansion. Currently, 16.1% of Kentuckians under 65 are uninsured. The new Medicaid rules will reduce the number of poor people without insurance by 57.1%.

Kentucky voted for John McCain in 2008.

Currently, 18.7% of Oregonians under 65 and 12.8% under 18 don't have health insurance. Under the proposed Medicare rules, the number of poor people without insurance will drop by 56.7%.

Oregon voted for Obama in 2008.

Times are tough in the Mountain State: 18.6% of West Virginians under 65 are uninsured. If the state adopts the Medicare rule change, the number of uninsured poor people will drop by 56.7%.

West Virginia voted for McCain in 2008.

South Carolina Gov. Nikki Hailey has already vowed to reject the Medicare expansion. Her state has one of the highest percentages of uninsured citizens: 19.9% of South Carolinians under age 65 don't have insurance. 12.7% of children under 18 are also uninsured. Under the proposed new Medicare rules, the percentage of poor people without health insurance would drop by 56.4%.

South Carolina voted for McCain in 2008. It's also where the first shot was fired in the Civil War.

Like South Carolina, Mississippi has also announced its plans to reject the Medicare expansion. And, like South Carolina, it could especially use the health care funds: 20.2% of Mississippians under 65 and 12.7% of those under 18 don't have insurance. Under the new rules, 54.9% of those poor people currently without health insurance would get it.

Mississippi voted for McCain in 2008.

At the other end of the scale, Delaware is one of the states that stands to benefit least from a Medicare expansion. Only 11.8% of people under 65 in the state are uninsured. Still, with the new rules, the number of uninsured people under the poverty line would drop by 15.9%.

Delaware voted for Obama in 2008.

With an uninsured population of just 13.3%, New York also won't get much out of the new Medicare expansion. Even so, the number of poor people without insurance in the Empire State will drop by 14.8%.

New York voted for Obama in 2008.

Arizona has one of the highest percentages of uninsured citizens: 21.2% of people under 65 and 16.2% under 18 don't have insurance. Even so, the Medicare expansion won't help the Grand Canyon state all that much: it will only reduce the number of poor people without health care by 13.6%.

Arizona voted for McCain in 2008.

Vermont has one of the lowest uninsured percentages in the country: Only 10.4% of its citizens don't have health coverage. Not surprisingly, the Medicare expansion won't help that much -- it will only reduce the number of uninsured poor people by 10.2%.

Vermont voted for Obama in 2008.

Photo: Skeddy in NYC, Flickr.com

Thanks in large part to Mitt Romney's statewide health insurance program, Massachusetts is the best-insured state in the nation. Only 4.6% of citizens under 65 and 2.1% under 18 aren't insured. Not surprisingly, the Bay State will also benefit least from the Medicare expansion: it will only reduce the number of poor people without insurance by 10.2%.

Massachusetts voted for Obama in 2008.

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