Low inflation means Social Security will increase only 2.6 percent

Associated Press

WASHINGTON — Social Security recipients will get a 2.6 percent cost-of-living increase next year, about $22 a month for the average retiree. That’s down from this year’s 3.5 percent raise because inflation has slowed.

Monthly Social Security checks for 45.6 million Americans are adjusted annually to keep rising prices from eroding recipients’ income. But dropping energy prices this year have kept inflation low.

The increase is automatic and is tied to changes in the Consumer Price Index, one of the government’s chief measures of inflation.

"Inflation continues to be low, which is certainly good news for the elderly and disabled," said Larry Massanari, acting commissioner of the Social Security Administration.

But next year’s raise "will seem to most people very small, particularly given the health care cost increases they are facing," said John Rother, legislation and public policy director for AARP, the retirees organization.

More than 60 percent of retirees rely on Social Security for more than half their income, the AARP said.

The government also announced Friday that monthly Medicare premiums will increase by $4 a month next year to $54, an 8 percent increase.

The premiums are deducted from most elderly and disabled Americans’ Social Security checks for insurance coverage of doctors’ office visits. About 40 million older and disabled Americans participate in the program.

The increase, which also takes effect Jan. 1, reflects higher health care costs and is legally mandated. It is not based on the cost-of-living adjustment.

Medicare care costs have jumped a seasonally adjusted 4.8 percent in the past year, fueled by a 7.2 percent increase in hospital services and a 6.8 percent rise in prescription drugs, the Labor Department said Friday.

Congress has talked a lot about dealing with the rising cost of prescription drugs — which are not covered under Medicare — but so far has done nothing. The Bush administration wanted to promote drug discount cards but a lawsuit by drugstore owners blocked the program.

The terrorist attacks have shifted political attention away from domestic concerns, so it is unclear when the issue could be addressed.

"But these kitchen table concerns have a way of coming back," Rother said. "They are so pervasive. They are what people face every day."

As for Social Security, President Bush has created a commission to recommend a plan later this fall to shore up future funding for the retirement system by letting younger workers invest some of their payroll taxes in the stock market. Social Security is expected to start paying out more in benefits than it collects in taxes by 2016 because of an influx of baby-boom retirees. The trust fund is projected to be depleted in 2038.

Starting in January, retirees’ average monthly Social Security check will increase from $852 to $874.

The maximum monthly payment for low-income beneficiaries will increase $14 to $545. For a low-income couple, the maximum monthly benefit will increase $21 to $817.