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Social Security Beneficiaries Get Larger-than-expected Increase
(RIVERWOODS, ILL., October 19, 2006) – Social Security beneficiaries in 2007 will see a relatively large increase in their monthly checks, according to CCH, a leading provider of tax and payroll law information and software (hr.cch.com). As a result of inflation, an increase of 3.3 percent will be applied to this coming year’s benefits, starting with December 2006 benefits, which are paid in January 2007. Although not as large as last year’s 4.1 percent increase, this is still the third largest annual increase since 1991.
The 3.3 percent cost-of-living adjustment, or COLA, will produce an estimated monthly benefit of $1,044 for all retired workers in 2007, $42 a month more than in 2006. However, $5, or 11.9 percent, of that increase will be eaten up by a rise in the standard premium paid by beneficiaries enrolled in Medicare Part B in 2007. With a total monthly Medicare Part B standard premium of $93.50 in 2007, Social Security beneficiaries enrolled in Medicare Part B will see that average $42 benefit increase reduced to $36 after rounding required by law. For the first time, a relatively small number of Medicare Part B enrollees with higher incomes, approximately 4 percent, will pay a higher premium based on their income.
A typical married couple, both receiving benefits, can expect to find $1,713 in their monthly benefit checks in 2007, $65 more than the comparable 2006 benefit, while the average widow or widower living alone will receive an average benefit of $1,008, an increase of $41. These amounts do not reflect deductions for Medicare premiums.
The maximum monthly benefit payable to an individual reaching full retirement age, which is age 65 and 10 months for those born in 1942, will be $2,116. This is $63 more per month than what was payable to someone retiring at full retirement age in January 2006 and $118 per month more than the maximum benefit of $1,998 payable to someone born in 1942 who still wishes to retire upon reaching age 65 in 2007.
The Social Security COLA is applied to several types of benefits: retirement, disability, survivors – such as children and widow(er)s – and to the maximum family benefit, which is the maximum that can be paid if more than one family member is receiving benefits based on one wage earner’s account.
Shelter Costs Drive Increase
“The increase is largely driven by an increase in shelter costs, which accounts for approximately 30 percent of the increase in the Consumer Price Index over the past 12 months,” said Avram Sacks, JD, CCH Social Security law analyst. “An increase in food and beverage costs accounted for another 16 percent of the increase.”
“The magnitude of the increase was not expected by the Board of Trustees of the Federal Old-Age, Survivors and Disability Insurance (OASDI) Trust Fund last May,” said Sacks. “At that time, they predicted a 2.3 percent increase, just over two-thirds of the actual figure based on the rise of the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of 2005 through the third quarter of 2006.”
“Until this past month, the COLA had been on track for a 3.5 percent increase. However, sharp declines in energy costs, including a 13.5 percent drop in gasoline costs in September, reduced the overall increase,” said Sacks.
Earnings Limits Also Rise
The amounts that certain Social Security beneficiaries can earn without having their benefits reduced – “Retirement Test Exempt Amounts” in Social Security terminology – also will go up next year.
Workers under full retirement age who are receiving benefits can earn up to $12,960 in 2007, or $1,080 per month, without having their benefits reduced. This is an increase of $480 annually over the 2006 limit.
A modified test applies to workers who reach the full retirement age of 65 and 10 months in 2007. In each month before they reach full retirement age, these individuals may earn up to $2,870 without having their benefits reduced. Once they reach full retirement age, benefits are no longer subject to any retirement test.
“This is an increase of $100 over the 2006 monthly limit for these workers,” Sacks noted.
An “earnings test” for beneficiaries at full retirement age through age 69 was abolished by legislation in 2000. Beneficiaries age 70 and older have not been subject to benefit reductions based on earnings since 1983.
The amount of monthly earnings in 2007 that will give rise to a presumption that a disability beneficiary is no longer disabled – that is, the amount that’s deemed sufficient to demonstrate an ability to engage in “substantial gainful activity” is $900, an increase of $40 from 2006. A higher threshold of $1,500 applies to blind beneficiaries.
Disability beneficiaries may work for as many as nine months during any 60-month period without affecting their rights to receive benefits. This is known as “trial work.” In 2007, a disabled beneficiary who works will not be treated as having engaged in trial work for any month in which his or her earnings are no more than $640, an increase of $20 over the 2006 limit.
SSI Earnings Limits
There is no trial work period for Supplemental Security Income (SSI) disability beneficiaries. However, if an SSI beneficiary is working, has only earnings and doesn’t pay expenses in order to work, the person may earn up to $1,331 per month in 2007 before the person’s SSI federal cash benefits stop. The amount was $1,291 in 2006. This is based on an exclusion of $85 per month (assuming the person has no other income) for the first $85 dollars of monthly earned income, plus a monthly deduction of $1 for every $2 earned thereafter. SSI beneficiaries in states that provide a supplement to the federal SSI benefit can earn even more before cash payments stop. However, if an individual has earnings of $900 or more in 2007, then the person would be considered to be engaging in “substantial gainful activity” and would probably not be eligible for SSI disability benefits, unless he or she is blind.
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