According to CCH, a leading provider of tax and payroll law information and software, Social Security beneficiaries in 2004 will see a moderate increase in their monthly checks. As a result of inflation, an increase of 2.1 percent will be applied to this coming year’s benefits, starting with December 2003 benefits, which are paid in January 2004.
The 2.1-percent cost-of-living adjustment, or COLA, will produce an estimated monthly benefit of $922 for all retired workers in 2004, $19 a month more than in 2003. A typical married couple, both receiving benefits, can expect to find $1,523 in their monthly benefit checks in 2004, $31 more than the comparable 2003 benefit, while the average widow or widower will receive an average benefit of $888, an increase of $18.
The maximum monthly benefit payable to an individual reaching full retirement age, which is age 65 and 4 months for those born in 1939, will be $1,825. This is $84 more per month than what was payable to someone retiring
at the full retirement age of 65 and 2 months in January 2003 and $41 per month more than the maximum benefit of $1,784 payable to someone born in 1939 who still wishes to retire on reaching age 65 in 2004.
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.
Energy Costs Drive Increase -
The increase is largely driven by an increase in energy costs, which have increased at a rate in 2003 that is nearly double the increase for all of 2002. The increase would have been even higher but for a slight slowing in the rising costs for medical care and shelter since last September, according to Avram Sacks, JD, CCH Social Security analyst.
"The magnitude of the increase was fairly accurately forecast by the Board of Trustees of the Federal Old-Age, Survivors and Disability Insurance (OASDI) Trust Funds last March," said Sacks. "At that time, they predicted a 2.3 percent increase, only 0.2 percent more than the actual figure based on the rise of the Consumer Price Index for Urban Wage Earners and Clerical Workers from the third quarter of 2002 through the third quarter of 2003."
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 $11,640 in 2004, or $970 per month, without having their benefits reduced. This is an increase of $120 annually over the 2003 limit.
A modified test applies to workers who reach the full retirement age of 65 and 4 months in 2004. In the months before they reach full retirement age, these individuals may earn up to $2,590 per month without having their benefits reduced. Once they reach full retirement age, benefits are no longer subject to any retirement test.
"This is a modest increase of $30 over the 2003 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.
Break-even Age -
Workers may retire as early as age 62, but they receive a reduced benefit if they do. Workers reaching age 62 in 2004 will not be entitled to a full retirement benefit unless they delay retirement until age 65 and 10 months. Their retirement benefit will be higher at that time, but workers with average lifetime earnings will have to live until age 76 and 1 month to recover the benefits they lost by waiting until full retirement age. The "break-even" age is 76 years and 8 months for workers with maximum lifetime earnings.
Disability Thresholds -
The amount of monthly earnings in 2004 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 $810, an increase of $10 from 2003.
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 2004, 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 $580, an increase of $10 over the 2003 limit.