Social Security payments to see first increase since 2009

@CNNMoney October 18, 2011: 6:10 PM ET
social security cola increase

NEW YORK (CNNMoney) -- Senior citizens are expected to get their first raise in two years.

Social Security recipients should get a cost of living adjustment of about 3.5% to 3.7% starting in January. The exact amount should be released Wednesday, when the government unveils the inflation index upon which the COLA is based.

Because inflation has been very low in recent years, beneficiaries have not seen a COLA increase since 2009, when they received a 5.8% boost.

However, most seniors are not likely to receive the full amount of the COLA increase because the expected hike in Medicare premiums could eat up part of the raise. The change in Medicare premiums, which could increase by a double-digit rate, should be announced next month.

The COLA increase will be welcome news to many seniors who have seen their costs go up, while their monthly Social Security checks have remained flat, said David Certner, AARP's legislative policy director.

Hey Social Security, I'm not dead!

Social Security plays a vital role in keeping senior citizens afloat. Nearly 55 million Americans receive benefits, with an average monthly check coming in at nearly $1,200. The COLA increase would translate to a roughly $41 increase.

Social Security benefits represent about 41% of the elderly's income, according to the Social Security Administration. But 22% of married couples and 43% of singles rely on the monthly checks for 90% of their income.

Many seniors have felt squeezed since banks are paying virtually no interest on savings accounts and stock market declines has eroded their retirement accounts. Plus, health care costs have skyrocketed.

"This is good news for seniors, who certainly feel they are falling behind," Certner said. "When you talk to people, they don't feel costs are going down."

The higher inflation index also means that workers will pay more into the Social Security system, though the exact amount won't be known for a few more weeks, said Polina Vlasenko, research fellow at the American Institute for Economic Research. Currently, the Social Security tax is levied on the first $106,800 of a person's wages.

Going forward, Social Security beneficiaries may not see such generous COLA increases. As part of the debt reduction talks, lawmakers are looking at changing the formula upon which the annual increase in based, Certner said. This could lower the COLA increase by several tenths of a percentage point, which may not sound like much but adds up over time, he said. To top of page

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