WASHINGTON - Social Security benefits for 50 million people are expected to go up next year by the largest amount in more than a quarter-century.
The new cost-of-living increase, to be announced Thursday by the Social Security Administration, is expected to be above 5.5 percent. That would make it the largest increase since a 7.4 percent jump in 1982. The increase for 2008 was 2.3 percent.
A 5.5 percent increase would mean about $60 a month more for the average retiree. Even with the gain, the fatter Social Security check still may seem puny to millions of retirees battered this year by huge increases in energy and food costs. They've also watched helplessly as their retirement savings have been assaulted by the biggest upheavals on Wall Street in seven decades.
"Right now many senior citizens are feeling depressed because things seem out of control," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University. "They feel like they are in a boat being whipped around by rough seas."
The market turbulence has continued this week with the Dow Jones industrial average plunging by 733 points on Wednesday, the second largest point drop on record. Earlier this month, the Congressional Budget Office estimated that Americans' retirement plans have lost as much as $2 trillion over the past 15 months - above 20 percent of their value - because of all the market upheaval.
With all the gloomy news, retirees may take little comfort in the new cost-of-living adjustment. The increase would have been even higher, but after racing ahead earlier in the year, energy costs began dropping in August, helping to moderate the overall price gain.
The rise in the cost-of-living adjustment is expected to be a sharp departure from recent years. The COLA increases have been below 3 percent for all but three of the past 15 years as the Federal Reserve was generally successful in its efforts to keep inflation under control.
Even with the big increase, the COLA still would be well below the gains of the late 1970s and early 1980s, when the country was in the grips of a decade-long bout of high inflation. The biggest cost-of-living jump on record was a 14.3 percent increase in 1980. Social Security benefits have been adjusted every year since 1975.
In one break for most retirees, the cost-of-living increase will not be eaten up by higher monthly premiums for the part of Medicare that pays for physician services. Because of gains in the Medicare Part B trust fund, that premium will hold steady at $96.40 a month, although higher-income people, including couples making more than $170,000 annually, will see their premiums increase.
Next year's cost-of-living increase will go to more than 55 million Americans. More than 50 million of them receive Social Security benefits, while the rest get Supplemental Security Income payments for the poor.
Sens. Barack Obama and John McCain have sparred over Social Security during the presidential campaign, although neither has provided much insight into how he would fix the government's largest entitlement program, which is facing severe strains with the upcoming retirement of 78 million baby boomers.
If no changes are made, the Social Security trust fund is projected to deplete its reserves in 2041 and will begin paying out more than it collects in benefits in 2017. That would force the government to borrow more, cut spending in other areas or raise taxes to keep benefits at current levels.
Copyright 2008 by The Associated Press. All Rights Reserved.