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Retirees to Get Small Monthly Boost

Social Security benefits will increase by 2.1% next year. But Medicare hikes will cut into raise.

October 17, 2003|From Associated Press

WASHINGTON — More than 51 million Americans will get a 2.1% increase in their monthly Social Security checks next year -- an extra $19 a month for an average retiree.

The Social Security Administration announced the cost-of-living adjustment Thursday, reflecting the nation's low inflation rate as measured by an index of consumer prices. This year's increase was 1.4%, or $13 a month for a typical retiree.

But most older Americans won't get to pocket all the increase. Monthly Medicare premiums also are rising, starting in January, by 13.5% -- $7.90 a month -- to $66.60.

Social Security faces a funding shortfall that is projected to start in 2018. However, despite proposals to reform the nation's retirement system to make it more solvent, lawmakers are squeamish about touching the politically sensitive program while they're seeking reelection.

To help shore up the system, the age at which workers can retire with full Social Security benefits has been gradually rising, along with the worker payroll taxes that fund current retirees' benefits. Those who retire this year have to be age 65 and two months to collect full benefits. Next year, the retirement age will rise to 65 and four months. It eventually will reach 67 for workers born in 1960 and after.

Nine million workers will have to pay more in payroll taxes beginning in January, when the limit on taxable annual earnings will rise to $87,900 from $87,000. All told, about 156 million workers pay Social Security taxes.

Monthly benefit checks have been adjusted automatically since 1975 to protect retirees' income from erosion caused by rising inflation. Benefits would be about 25% lower today had there been no adjustment each year, said Bill Novelli, executive director and chief executive of AARP, formerly the American Assn. of Retired Persons.

"The weak stock market and low fixed-income rates on one hand, and rapidly rising health care costs on the other, have reinforced the importance of Social Security in the last few years," Novelli said.

Social Security is the main source of income for eight out of 10 retirees, AARP said.

"Low inflation is good for consumers, but without the annual [cost-of-living adjustment], even low inflation would erode the purchasing power of the millions of people who depend on Social Security income," Novelli said.

In 1980, for example, benefits jumped 14.3%, the largest annual cost-of-living increase, reflecting the double-digit inflation of that era. So far this year, inflation is running at an annual rate of 2.5%.

A retiree's average monthly benefit will increase next year from $903 to $922. For the average couple receiving benefits, the monthly check will rise from $1,492 to $1,523, an increase of $31.

The average monthly benefit for disabled workers will increase from $844 to $862.

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