updated 10/17/2007 11:48:19 AM ET 2007-10-17T15:48:19

Come January, Social Security benefits for nearly 50 million Americans are going up 2.3 percent, the smallest increase in four years. It will mean an extra $24 per month in the average check, the government announced Wednesday.

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The cost of living adjustment means that the monthly benefit for the typical retired worker in 2008 will go from $1,055 currently to $1,079 next year.

The adjustment, announced by the Social Security Administration, will go to more than 54 million Americans. Nearly 50 million receive Social Security benefits and the rest get Supplemental Security Income payments aimed at helping the poor.

The 2.3 percent increase is the smallest since a 2.1 percent rise in 2004. It compares to an increase of 3.3 percent last year and a jump of 4.1 percent in 2006, which had been the biggest advance in 15 years.

The COLA is based on the change in consumer prices from the July-September quarter of this year compared to the same period last year. Benefit payments have been tied to inflation since 1975.

Advocacy groups for the elderly said that the small increase announced Wednesday underscored the need to revamp the cost-of-living adjustment to better reflect prices paid by retired people, including the money they spend on health care.

The Senior Citizens League said a study it has done showed that in eight key spending areas, people over the age of 65 have lost 40 percent of their purchasing power since 2000, reflecting such factors as a doubling in the price of gasoline and home heating oil over that period.

“Social Security is supposed to protect seniors in need — but with 5 million seniors below the poverty line, it’s clear the system is failing them,” said Shannon Benton, executive director for the league.

The big jump for 2006 occurred because energy prices had soared in September of 2005, reflecting the impact of Hurricane Katrina. This year, however, energy prices have been coming down in recent months after having spiked in the spring.

With oil prices surging this week to highs above $88 per barrel, analysts believe that consumers will get socked with higher gasoline prices and home heating oil costs in coming months, but those gains will come too late to influence the new cost-of-living adjustment.

In addition, food prices and medical prices have been rising rapidly this year. But those gains have been offset somewhat by a moderation in categories that the elderly tend to buy less of such as computers, consumer electronics and clothing.

“Social Security recipients are going to feel like they are getting squeezed,” said Mark Zandi, chief economist at Moody’s Economy.com. “For most households out buying gasoline and a loaf of bread, it feels like inflation is high.”

Part of the Social Security increase will be eaten up by a rise in the cost of Medicare, the giant health care program that covers the elderly and disabled. The government announced earlier this month that Medicare premiums will rise 3.1 percent next year or $2.90 to $96.40 per month. That is the lowest Medicare premium increase in six years.

The average retired couple, both receiving Social Security benefits, will see their monthly check go from $1,722 to $1,761, an increase of $39.

The standard SSI payment for an individual will go from $623 per month to $637.

The average monthly check for a disabled worker will go from $981 to $1,004.

The government also announced Wednesday that nearly 12 million wage earners will pay higher taxes next year because the maximum amount of Social Security earnings subject to the payroll tax will rise from $97,500 currently to $102,000. In all, an estimated 164 million workers will pay Social Security taxes in 2008.

The Social Security Administration on Monday had a ceremony to highlight the opening wave of baby boomer retirements, a generation of 78 million people born from 1946 to 1964. The first of those boomers will turn 62 next year, making them eligible for Social Security benefits.

An estimated 10,000 people a day will become eligible for Social Security benefits over the next two decades, putting a severe strain on the pension program.

If no changes are made, the Social Security trust fund is projected to deplete its reserves in 2041 and even sooner, in 2017, Social Security is scheduled to start paying out more in benefits than it collects each year in payroll taxes. Medicare is facing even greater funding problems because of the rapidly rising cost of health care.

President Bush pledged to make reforming Social Security the top priority of his second term, but his plan to provide private accounts for younger workers went nowhere in Congress and Republicans and Democrats remain deadlocked on the issue.

A coalition named Divided We Fail has been pressing to get the presidential candidates of both parties to address issues regarding Social Security and affordable health care during the campaign.

“We want to get all of the candidates on the record and we want to let voters make up their own minds,” said Jim Dau, an official with AARP, an advocacy group for people 50 and older.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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