Social Security raises '08 benefits by 2.3%

WASHINGTON — Payments to Social Security recipients and most federal retirees will increase 2.3 percent in January. It is the smallest cost-of-living adjustment since 2003, reflecting a lower rate of inflation.

The adjustment will increase the average monthly Social Security retirement benefit by $24, to $1,079. It is based on the rise in the consumer price index (CPI) in the third quarter, a figure the Labor Department released Wednesday.

The increase directly affects the finances of about 50 million people, including more than 31 million Social Security retirees and 11 million people who receive disability or other supplemental income from the Social Security Administration.

It is also a significant number to the more than 4 million federal government and military retirees.

The pensions of most civil-service, foreign-service and military retirees will match Social Security's 2.3 percent increase.

Government workers covered by the newer Federal Employees Retirement System who are 62 or older will receive an adjustment of 2 percent under the rules of that program.

The Social Security Administration announced another closely watched figure Wednesday, raising from $97,500 to $102,000 the figure below which earnings are subject to Social Security taxes.

By law, the cutoff is set using a formula based on the change in average wages. Wednesday's recalculation will increase taxes for about 12 million of the 164 million workers expected to pay into the Social Security system in 2008, the agency said.

Retirees are generally better off with low inflation, even if it means a smaller increase in their Social Security benefits, said David Certner, legislative policy director of AARP.

That is because Social Security is the only source of many retirees' income that automatically rises with inflation. During periods of high inflation, they might get a higher Social Security adjustment, but if their savings and other sources of income stay the same, they are harder hit by increases.

Moreover, the price increases that retirees routinely face are frequently higher than the Social Security cost-of-living adjustment, because older families spend more on health care and energy than the overall U.S. population. Those costs have been rising faster than prices in general.

After two years of relatively steep cost-of-living adjustments, this year's increase was modest because of easing energy costs and lower prices for clothing and some other goods.