Last Updated: October 6, 2008
Thanks to rising inflation, more than 55 million Americans will receive one of the largest Cost-of-Living Adjustments (COLA) to their Social Security retirement benefits starting next year. The Social Security Administration (SSA) last week announced that monthly Social Security and Supplemental Security Income benefits will increase 5.8 percent in 2009, the largest increase since 1982.
The monthly benefit for the average retiree will rise from $1,090 to $1,153, an increase of $63 per month. The monthly benefit for the average retired couple, where both receive a benefit will rise from $1,773 to $1,876, an increase of $103. Social Security and Supplemental Security Income benefits increase automatically each year based on the rise in the Bureau of Labor Statistics' Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), from the third quarter of the prior year to the corresponding period of the current year. This year's increase in the CPI-W was 5.8 percent, an increase driven by food and higher energy costs.
Unlike in years past, the COLA will not be eaten up by increases in Medicare Part B or Part D premiums. Medicare Part B premiums will remain at $96.40 in 2009 for about 95 percent of Medicare recipients, the Centers for Medicare and Medicaid Services said in September. And the average monthly premium for standard beneficiaries in the Medicare Part D drug program is expected to rise to $28 next year, a $3 hike, according to CMS. (Of note, Medicare Part B enrollees in the highest income bracket, those filing individual tax returns greater than $213,000 or joint returns greater than $426,000, will pay a total monthly premium in 2009 of $308.30.) "I am certain that this Social Security increase will be a most-welcome relief to retirees, particularly those for whom Social Security is a major component of their income," said FPA member, Kathleen Day, CFP®, President of The Enrichment Group. "For the past several years, increases have almost entirely been absorbed by the increased Medicare costs."
Other changes that take effect in January of each year are based on the increase in average wages, Social Security Administration said in a release. Based on that increase, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $106,800 from $102,000. Of the estimated 164 million workers who will pay Social Security taxes in 2009, about 11 million will pay higher taxes as a result of the increase in the taxable maximum.
The amounts that certain Social Security beneficiaries can earn without having their benefits reduced also will go up next year, according to a CCH release. Workers under full retirement age who are receiving benefits can earn up to $14,160 in 2009, or $1,180 per month, without having their benefits reduced. This is an increase of $600 annually over the 2008 limit. A modified test applies to workers who reach the full retirement age of 66 in 2009, CCH said. In each month before they reach full retirement age, these individuals may earn up to $3,140 without having their benefits reduced. Once they reach full retirement age, benefits are no longer subject to any retirement test.
"The negative impact on those workers who earn the maximum will surely be less than the positive impact on retirees who live on their Social Security," said Day. "It does seem interesting that, in this year when the economy is down, and we are looking at what will probably be at least a moderate recession, the increase will be that high."