Retirement Benefits: What to Expect in 2010

In most years, retirement benefits increase to keep up with inflation. But 2010 will be far from typical. Because of a drop in the consumer price index, government payouts and tax incentives to save for retirement will generally stay the same. At the same time, out-of-pocket retiree health costs, especially for prescription drugs, will continue their steady climb. Here's a look at what will happen to retirement benefits in 2010.

No Social Security increase. Monthly Social Security checks for most beneficiaries will not increase in 2010. Retirement payouts are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, which fell between the third quarter of 2008 and the third quarter of 2009. Next year will be the first without a Social Security increase since cost-of-living adjustments went into effect in 1975. (There is a chance of a change, though; several bills to give retirees a raise are being considered by Congress.) The maximum amount of earnings subject to the Social Security tax will also remain the same at $106,800.

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Higher Medicare Part B premiums for some. Most current Social Security recipients will continue to pay $96.40 each month for Medicare Part B medical insurance, the same amount as in 2009. But for new enrollees, Medicare Part B monthly premiums will be $110.50, a 15 percent increase from 2009 prices. Retirees with incomes greater than $85,000 ($170,000 for couples) also will pay higher premiums, ranging from $154.70 to $353.60 each month, depending on the income reported on their 2008 tax return.

Larger Medicare Part D premiums and out-of-pocket costs. The average monthly Part D premium will increase by 11 percent in 2010 if beneficiaries remain in their current plans, according to a recent analysis of 2010 plans by researchers at the Kaiser Family Foundation, Georgetown University, and the University of Chicago. About 61 percent of drug plans will charge a deductible in 2010, and 80 percent will have a coverage gap—or "doughnut hole"—during which beneficiaries must pay 100 percent of their drug costs, up from 45 percent and 75 percent respectively this year. "For those in a plan that increases its premium, people who have their Part D premiums deducted from their Social Security check could see a reduction in their Social Security payments beginning in January," says Tricia Neuman, director of the Medicare Policy Project at the Kaiser Family Foundation.

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401(k) contribution caps stagnant. The contribution ceiling for 401(k)'s will stay the same next year. The maximum amount will remain $16,500. Those age 50 and older will be able to make catch-up contributions of an additional $5,500 next year, which is also unchanged from 2009. "There was speculation about whether that $16,500 would be reduced for 2010 because there was negative inflation in 2009, but the limits are not going down," says Mark Iwry, a senior treasury official. Workers with a retirement plan who earn less than $66,000 annually ($109,000 for couples) also can contribute up to $5,000 to a traditional or Roth IRA, and workers age 50 and over can contribute up to $6,000. The income limits don't apply to couples who don't have a retirement plan through their jobs.

Pension insurance limits stay the same. The federal government insures most private-sector pensions up to certain limits. The maximum amount that will be replaced by the government if your employer goes bankrupt in 2010 will be $54,000, which is unchanged from 2009. Insurance amounts are indexed to Social Security benefits, which will also remain the same in 2010, according to the Pension Benefit Guaranty Corp. As in previous years, the maximum insured pension is higher for workers who delay retirement and lower for those who retire early. Annual maximums are reduced for workers who elect survivor's benefits for a spouse.

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