Social Security payments to more than 47 million retired and disabled workers will rise 2.7 percent in January to help recipients keep up with inflation, lifting the average monthly benefit by $25, to $955, the government reported yesterday.
But for senior citizens enrolled in Medicare, nearly half that increase will be consumed by rising health insurance premiums. The premiums, which are deducted from Social Security checks, will rise 17.5 percent next year, an average $11.60 per month.
The combined effect of the Social Security and Medicare increases "is good and bad news," said William D. Novelli, chief executive of AARP, the nation's largest advocacy group for retirees.
More than 10 million more recipients of other federal benefits will also get a cost-of-living adjustment in their monthly checks based on changes in the Labor Department's consumer price index over the past year.
Payments will go up 2.7 percent beginning Dec. 30 for beneficiaries of Supplemental Security Income, which is paid to low-income people. Recipients of military and Foreign Service annuities and most federal civilian pensions will also get the 2.7 percent increase, beginning in January.
Federal retirees covered by the Civil Service Retirement System will get the full 2.7 percent increase in pension benefits in January. Workers who retired under the newer Federal Employees Retirement System and who are 62 or older will get a 2 percent increase, officials said.
In the District, Virginia and Maryland, about 321,000 federal civilian retirees and survivors and about 167,000 military retirees will get bigger monthly checks.
The increases are based on changes to the consumer price index for urban wage earners and clerical workers over the year that ended Sept. 30.
Medicare deductibles and premiums are set annually according to different formulas. About 6.8 million low-income Medicare recipients will not feel the premium increase because it will be covered by Medicaid.
The 2.7 percent Social Security benefit increase will be the largest since January 2001, when benefits rose by 3.5 percent because of price increases in 2000, the last year of the recent stock and investment boom. Cost-of-living adjustments fell in subsequent years along with inflation, during the 2001 recession and uneven recovery that followed.
About 20 percent of the nation's elderly rely on Social Security for all their income, the government estimates.
The Labor Department also reported that another measure of inflation, its more widely followed consumer price index for all urban consumers, rose a modest 0.2 percent last month and 2.5 percent in the 12 months that ended in September.
Higher prices last month for transportation, medical care, recreation, education and communication were largely offset by falling energy prices. But many economists expect the recent run-up in crude oil prices to push gasoline, heating oil and other energy prices higher in coming months.
"To be sure, energy prices were quite tame in September. . . . But starting next month, higher energy prices will resume ravaging consumers' wallets," David Rosenberg, chief U.S. economist for Merrill Lynch & Co., wrote in an analysis.
After excluding food and energy prices, so-called core prices rose 0.3 percent for the month and 2 percent over the past year.
After adjusting for the latest inflation figures, the Labor Department also reported yesterday that average weekly earnings for most workers were flat in September.
But because of the increase in average wages over the year, the maximum amount of earnings subject to the Social Security tax will grow to $90,000 next year from $87,900 this year. Of the estimated 159 million workers who will pay the tax next year, about 9.9 million will pay more as a result of the increase in the ceiling, the administration said.
The maximum Social Security benefit for a worker retiring at full retirement age will rise to $1,939 a month next year from $1,825 a month this year. Most retirees, however, do not qualify for the maximum benefit because their earnings during their working years were not high enough.
Disabled workers will get an average benefit of $895 a month next year, up from $871 a month this year.
Workers used to be able to retire at their 65th birthday and receive full Social Security benefits, but that age has been rising. This year, people born in 1939 had to wait until they were 65 years and four months old to receive full benefits. Next year, people born in 1940 will have to wait until they are 65 years and six months.
The full retirement age is set by law, and it is being raised to encourage workers to retire later, which should reduce financial pressure on the system over time.
Some economists have argued that the age should go higher still, since Americans are living longer, and in better health. Others counter that while a higher retirement age may be reasonable for academics and others who primarily perform intellectual labor, it is less acceptable for those who spend many years engaged in physical labor.
Staff writer Stephen Barr contributed to this report.