Your $tock Mom

By The Associated Press
Some 55 million Social Security recipients will get a 3.6 percent increase in benefits next year, their first raise since 2009, the government announced Wednesday.

The increase, which starts in January, is tied to a measure of inflation released Wednesday morning.

About 8 million people who receive Supplemental Security Income will also receive the 3.6 percent cost-of-living adjustment, or COLA, meaning the announcement will affect about one in five U.S. residents.

There was no COLA in 2010 or 2011 because inflation was too low. Those were the first two years without a COLA since automatic increases were adopted in 1975.

Monthly Social Security payments average $1,082, or about $13,000 a year. A 3.6 percent increase will amount to about $39 a month, or just over $467 a year, on average.

Advocates for seniors said the raise will provide a much-needed boost to the millions of retirees and disabled people who have seen retirement accounts dwindle and home values drop during the economic downturn. Economists say the increase should provide a modest boost to consumer spending, which should help the economy.

Still, many seniors feel like they have been falling behind.

Nancy Altman, co-chair of the Strengthen Social Security Campaign, said she is pleased Social Security recipients will get a raise next year. But, she added, “The COLA is still not enough to keep up with health care costs.”

“Despite the absence of a Social Security COLA, over the last two years out-of-pocket health care costs rose 14.1 percent for seniors and people with disabilities, effectively reducing the value of Social Security benefits,” Altman said.

Some of the increase in January will be lost to higher Medicare premiums, which are deducted from Social Security payments. Medicare Part B premiums for 2012 are expected to be announced next week, and the trustees who oversee the program are projecting an increase.

Most retirees rely on Social Security for a majority of their income, according to the Social Security Administration. Many rely on it for more than 90 percent of their income.

“For people at that income level every dollar makes a difference, particularly coming in this economic downtown,” said David Certner, legislative policy director for AARP. “None of them feel as if their cost of living was not increasing in the last couple of years.”

Federal law requires the program to base annual payment increases on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Officials compare inflation in the third quarter of each year — the months of July, August and September — with the same months in the previous year.

If consumer prices increase from year to year, Social Security recipients automatically get higher payments, starting the following January. If price changes are negative, the payments stay unchanged.

Social Security payments increased by 5.8 percent in 2009, the largest increase in 27 years, after energy prices spiked in 2008. But energy prices quickly dropped and home prices became soft in markets across the country, contributing to lower inflation in the past two years.

As a result, Social Security recipients got an increase that was far larger than actual overall inflation. However, they can’t get another increase until consumer prices exceed the levels measured in 2008. Wednesday’s announcement shows that prices have exceeded those measured in 2008, said Polina Vlasenko, an economist at the American Institute for Economic Research, based in Great Barrington, Mass.