Seniors who have recently seen their nest eggs tank are finally getting a small break. Social Security benefits will increase 5.8 percent next year, the largest cost-of-living increase in more than 25 years.
The estimated average check next year will be $1,153, up $63 from last year. The maximum benefit will be $2,323 monthly. The average couple both receiving benefits will get about $1,876. Delaying claiming Social Security until age 70 produces higher payouts.
The adjustment is more than double the 2.3 percent increase in benefits seniors received this year and the sharpest increase in checks since 1982, when benefits jumped 7.4 percent. The increase is tied to the consumer price index, a measure of the prices paid by urban consumers for goods and services.
David Certner, legislative policy director at AARP, says this increase will not completely ease the burden of those living on fixed incomes. "While the COLA is larger than in recent years, so are costs for food, energy, and healthcare," says Certner. "But in a time when every dollar counts, any increase in income is a welcome development." Collectively, retirement savers have lost approximately $2 trillion in the stock market over the past 15 months, according to a Congressional Budget Office estimate.
Some retirees choose to continue to work after signing up for Social Security benefits. The amount retirees can earn without having their benefits reduced also will increase. Those who work and collect Social Security benefits before their full retirement age can earn up to $14,160 without penalty in 2009. (For baby boomers turning 62 in 2009, full retirement age is 66.) Above that level of earnings, workers will lose 50 cents of every benefit dollar.
If you reach your full retirement age next year, you can earn up to $37,680 between January and your birthday without penalty, after which your Social Security check will be reduced by about 33 cents of every dollar earned. After you reach your full retirement age, there is no penalty for working.
But benefits withheld because you are working aren't lost forever. If you earn more than the income limits in your early and mid-60s after signing up for Social Security, your check will be recalculated to a higher amount when you reach full retirement age.
These benefit increases will be paid for by increasing the maximum amount of earnings subject to the Social Security tax to $106,800, up from $102,000 last year. 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.