The 5.8 percent cost-of-living adjustment, or COLA, will produce an estimated average monthly benefit of $1,153 for all retired workers in 2009, $74 a month more than in 2008. What’s more, for most beneficiaries, none of that increase will be eaten up by a rise in the standard premium paid by beneficiaries enrolled in Medicare Part B in 2009. A relatively small number of Medicare Part B enrollees with higher incomes, about 5 percent, will pay a higher premium based on their income. Medicare Part B enrollees in the highest income bracket (i.e., those filing individual tax returns greater than $213,000 or joint returns greater than $426,000) will pay a total monthly premium in 2009 of $308.30.

A typical married couple, both receiving benefits, can expect to find $1,876 in their monthly benefit checks in 2009, $115 more than the comparable 2008 benefit, while the average widow or widower living alone will receive an average benefit of $1,112, an increase of $71. These amounts do not reflect deductions for Medicare premiums.

A gradual rise in full retirement age began in 2000 resulting from amendments in 1983 to the Social Security Act, increasing full retirement age from age 65 to age 67. In 2009, full retirement age is 66 and thus, individuals born January 2, 1943 through January 1, 1944 will reach full retirement age in 2009. Full retirement age will remain at age 66 until 2021 when it will again gradually increase until reaching age 67. For individuals reaching age 66 in 2009, the maximum possible benefit is $2,323.

The maximum benefit payable to someone who still wishes to retire upon reaching age 65 in 2009 is $2,172. However, if this individual were to wait until they reach the full retirement age of 66 in 2010, the maximum benefit will be much higher and would include the 2009 COLA, which will be announced in October 2009. Full retirement age will remain at age 66 for the next 12 years for individuals born in 1943 through 1954.

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.

Gasoline and Food Costs Drive Increase
"This year’s increase is largely driven by an increase in energy and food costs," said Avram Sacks, JD, CCH Social Security law analyst. Gasoline costs, which account for 6.5 percent of the consumer price index (CPI-W), increased by 31.8 percent from one year ago. Food costs, which accounts for 15 percent of the CPI increased by 6.3 percent from one year ago – the highest increase since 1991. Other energy costs, attributed to fuel other than gasoline and utilities, increased by 12 percent. This amounts to 6 percent of the CPI.

"If food and energy costs were removed from the CPI equation, the annual increase would have only been 2.4 percent, which is not much different from last year’s 2.3 percent increase," said Sacks.

"The magnitude of the increase was not expected by the Board of Trustees of the Federal Old-Age, Survivors and Disability Insurance Trust Fund last March," Sacks observed. "At that time, they predicted a 2.7 percent increase, less than half 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 2007 through the third quarter of 2008."

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 $14,160 in 2009, or $1,180 per month, without having their benefits reduced. This is an increase of $600 annually over the 2008 limit.

A modified test applies to workers who reach the full retirement age of 66 in 2009. In each month before they reach full retirement age, these individuals may earn up to $3,140 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 $130 over the 2008 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.

Disability Thresholds
The amount of monthly earnings in 2009 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 $980, an increase of $40 from 2008. A higher threshold of $1,640 per month 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 2009, 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 $700, an increase of $30 over the 2008 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 $1,435 per month in 2009 before the person’s SSI federal cash benefits stop. The amount was $1,359 in 2008. 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 $980 or more in 2009, 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.