Social Security recipients will get a 1.4 percent cost-of-living increase in their monthly checks next year, the smallest increase in four years, reflecting a slowdown in inflation caused by the weak economy. The increase will mean an extra $13 a month for the typical retiree.
The increase, announced by the Social Security Administration on Friday, will cover the country's 46 million people receiving Social Security benefits and 7 million recipients of Supplemental Security Income, the federal government's cash assistance program for the needy.
The increase, which will show up in January Social Security checks, is down from this year's boost of 2.6 percent. In 2001, benefit checks went up by an even larger 3.5 percent, the biggest cost-of-living rise in nine years.
This year's increase, the smallest since a 1.3 percent gain in 1999, reflected the dampening effect last year's recession and this year's uncertain recovery has had on the ability of businesses to raise prices.
Social Security Commissioner Jo Anne B. Barnhart said that lower inflation is good news for America's elderly and disabled. ``Inflation is one of the biggest challenges for people living on a fixed income,'' she said.
Monthly Social Security checks have been adjusted automatically, starting in 1975, to protect retirees from seeing their benefits eroded by rising inflation. The biggest annual increase was a 14.3 percent jump in 1980, reflecting the double-digit inflation of that era, while adjustments over the past decade have averaged a much smaller 2.6 percent as the country has enjoyed a prolonged period of milder inflation.
The average monthly check for individual retirees will rise from $882 currently to $895 starting in January, an increase of $13. For the average couple receiving Social Security benefits, their monthly check will go from $1,463 to $1,483, an increase of $20.
The 1.4 percent increase for the needy receiving SSI payments will translate into a maximum payment of $552 a month for an individual, an increase of $7. For a couple, the maximum payment will rise to $829 a month, an increase of $12.
Some of the gain that retirees will receive in higher benefit checks will be eaten up by higher health insurance costs. The government also announced Friday that monthly Medicare premiums will increase to $58.70 next year, up from $54 currently, an increase of 8.7 percent, reflecting rapidly rising health care costs.
Social Security also announced that for working Americans, the maximum annual earnings subject to Social Security taxes next year will rise to $87,000 from $84,900 currently. This change will affect about 9.7 million of the 155 million workers paying Social Security taxes.
In this fall's midterm election campaign, Democratic congressional candidates have attacked their Republican opponents over the issue of how best to bolster the program's finances to cover the retirement of baby boomers.
President Bush campaigned for office in 2000 on a program to partially privatize Social Security by allowing younger workers to divert part of their Social Security taxes into personal investment accounts on the belief that these accounts would earn higher returns than the same money invested in government bonds.
However, Democrats have used the stock market's steep plunge to attack the idea of privatizing any part of Social Security and have run campaign ads against Republicans accusing them of pushing risky schemes that will put retirees' Social Security benefits at risk.
Many analysts believe the bitter campaign debate and the government's rapidly worsening budget outlook will make it far harder in the next Congress to come up with a solution to the Social Security problem.
``There is no real prospect that we are going to make any changes in the way Social Security is handled in the near future,'' said Mark Zandi, an economist at Economy.com. ``We lost a golden opportunity when the government's fiscal situation was strong and the stock market was healthy to deal with Social Security.''
Peter Orszag, a Brookings Institution economist who served as an economic adviser in the Clinton White House, said one of the problems was that the campaign debate over Social Security could lock candidates into taking positions that will make reforming Social Security that much harder.
``Broadly speaking the elements of Social Security reform are pretty clear — you need some adjustments to benefits and some adjustments on the revenue side,'' he said. ``If you sign on now to saying I will never raise taxes or cut benefits, then you don't leave much room later for getting reform done.''
Michael Tanner of the Cato Institute, a Washington think tank that is promoting creation of the individual investment accounts as a way to bolster Social Security, said the outcome of the Nov. 5 elections will play a big role in determining whether the idea can win approval in the next Congress.
``Depending on the outcome of the elections, we could see action in Congress next year,'' Tanner said. ``The president remains committed to doing this.''