October 20, 2001

Social Security Checks to Rise 2.6%


Retirees will receive $22 more a month next year, on average, in their Social Security checks because of the moderate rise in inflation this year.

The higher benefits, a 2.6 percent cost-of- living increase, reflect the modest growth of the Consumer Price Index for the 12 months through September, the time span used by the government to calculate annual changes in Social Security payments. Monthly Social Security checks for 45.6 million Americans are adjusted annually to keep rising prices from eroding recipients' benefits.

The increase was in line with most of the annual adjustments over the last decade of generally low inflation. But it was more modest than the 3.5 percent rise for 2001, which was a nine-year high.

The Labor Department, which measures the changes in a set market basket of food, clothing, housing, energy, medical costs and more that go into calculating the price index, announced yesterday that the gauge rose 0.4 percent in September.

"Today's news tells us that inflation continues to be low, which is certainly good news for the elderly and disabled," said Larry G. Massanari, the acting commissioner of Social Security.

For the average recipient of Social Security, checks will rise beginning in January to $874 a month from $852. The maximum retirement benefit will rise to $1,660 from $1,536, and the monthly benefit for a widowed mother and two children will rise to $1,754 from $1,719, on average.

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

For working Americans, the maximum annual earnings subject to Social Security taxes next year, which follows a different formula than the benefit adjustment, will rise to $84,900 from $80,400. Of the 154 million workers who pay Social Security taxes, about 10.5 million will be affected by the higher wage base in 2002.

The moderate inflation rate is one of the few silver linings of a faltering economy, said Brian Nottage, director of macroeconomic forecasting at Economy.com. That, in turn, opens up room for the Federal Reserve to cut interest rates more aggressively, he said, because "they can focus on the slower economy" without worrying about rekindling higher inflation.

Falling energy prices are a crucial reason inflation has remained low, said Sung Won Sohn, the chief economist for Wells Fargo & Company (news/quote). "We expect the price of oil to decline as the global economy plunges into a recession," he said.

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