Richard and Carol Birch
Robert Ray  /  AP
Richard and Carol Birch of Geneva, Ill., say that Medicare is a drain on their finances and that the new Social Security raise won't help much.
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updated 10/23/2011 12:57:46 PM ET 2011-10-23T16:57:46

For some, the just-announced increase in Social Security checks amounts to an extra meal out, a little more cash for clothes or a new pair of shoes, some added comfort in retirement. For Elizabeth Davis, it's a crucial boost to the only thing keeping her afloat.

The 71-year-old Miami woman grew up picking cotton on her family's South Carolina farm, raised four children and has worked all her life, even now at a preschool. She is divorced, and her small 401k account "went down the drain," she said. So she counts the days to the third Wednesday of each month, when her $668 Social Security check arrives, and she is able to pay her bills.

"I could live a little better," she said of the 3.6 percent raise announced this week, the first in two years. "I don't have anything to look forward to until that check every month."

The reaction the cost-of-living adjustment has garnered illuminates the divide between the rich and poor among America's oldest residents. Social Security represents a staggering share of income for lower- and middle-class seniors — made evident just this week in a new government report — and for whom any increase can make a world of difference. For upper-income seniors, it's simply a nice plus.

Starting in January, 55 million Social Security recipients will get increases averaging $39 a month, or about $467 a year. In December, more than 8 million people who receive Supplemental Security Income, the disability program for the poor, will get increases averaging $18 a month, or about $216 a year.

Davis felt the effects of no raise the past two years. Her only other income is a small stipend for her work that averages about $232 a month. She's been using her credit card more and building debt. She's already trimmed as much as she can — from cutting her cable plan to limiting her phone usage to keeping the air conditioning off. She owns her home, but taxes, insurance, utilities and groceries eat up nearly all her income. As those costs rise, there was no wiggle room.

In Seattle, Joseph C. Visintainer lives alone with his cat in a U.S. Department of Housing and Urban Development complex, where rent is kept affordable. The retired restaurant worker said he keeps his expenses low in part by taking the bus instead of driving, and eating TV dinners instead of buying meat. Visintainer lives off Social Security and keeps some investments just for emergencies.

"I have to watch what I spend. I don't go out a lot like I used to," he said. "If I get an increase, I'll say thank you."

For John Bowker, 81, a retired executive, it's simply a little something extra. He and his wife, Linda, a retired computer programmer, live in the sprawling southwest Florida retirement community of Sun City Center, largely off their savings and investments. But a raise in Social Security adds some padding.

"We can do a little more on our weekends," Bowker said. "We'll feel a little less squeamish about going out and spending 40 or 50 bucks a month for a meal."

For many of the Bowkers' neighbors, though, it's different. He said some have even had trouble coming up with the modest $256-a-year dues residents of Sun City Center must pay on top of their mortgage or rent. Across the income spectrum, though, he said he hears wide acknowledgement from his neighbors that seniors are better off with Social Security.

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"Even for us rock-red Republicans," he said, "this is one of the government programs that we would hurt very badly if it were not available to us."

The government formally announced the raise Wednesday, two days after the Government Accountability Office put out a report on income security among seniors that shed light on just how crucial Social Security payouts are.

The report found that household income rose 5 percent from 2007 to 2009 for those 65 and up, even though it fell 6 percent for those aged 55 to 64 who are just shy of retirement. Likewise, poverty rates increased among the younger demographic but decreased among those 65 and older. Many cite Social Security as a key factor.

Frank Chicoine, 80, of Stuart, Fla., receives a pension from his years working at a utility company, but that check's amount is fixed, never rising. The cost-of-living adjustment, or COLA, is the only raise he gets.

Medicare premiums cost him and his wife nearly $200 a month, and their supplemental health insurance is another $600 a month. His homeowner's premium went up by $600 to $2,000 this year as insurers have been granted hefty rate hikes. All his expenses seem to keep going up.

"I consider myself one of the lucky ones," he said. "But if I lost that $1,700 or $1,800 a month, it would change my life."

Chicoine isn't alone in seeing his income eaten up by higher medical costs. As much as one-quarter of the raises to Social Security beneficiaries could be wiped out by higher Medicare premiums, according to projections. Those premiums, for Medicare Part B, which covers doctor visits, could be announced as early as next week.

Richard Birch, 84, and his 72-year-old wife, Carol, said they spend thousands of dollars a year on medical treatments and roughly $300 a month on prescription medications after each survived bouts with cancer. They said their Social Security raise would likely be eaten up by the Medicare increases, so the couple will continue to live frugally as they've done for years.

The Birches have lived in their Geneva, Ill., home outside Chicago for 40 years and have driven the same car for 25 years. Despite earning a pension in addition to Social Security, they've changed many of their habits since the economic downturn.

"We think twice about driving places because of the price of gas, we don't by clothes and we almost never go out to eat or have steak at home any longer," Carol Birch said with a smile and shrug.

The report from the GAO this week showed that among the bottom fifth of people 65 and older, Social Security comprised 83 percent of income. For the middle tier, it made up 64 percent. Among the most well-off, it represented less than 20 percent of their income.

The annual cost-of-living adjustment is tied to an inflation measure released Wednesday. The measure, which was adopted in the 1970s, produced no raises in 2010 or 2011 because inflation was too low. Those were the first two years without such a raise since automatic increases were enacted in 1975. Social Security recipients did, however, receive a one-time $250 payment from the economic stimulus package passed in 2009.

Doris Miller, 79, lives in the Tulsa, Okla., suburb of Broken Arrow and takes seven prescription medications every day for high blood pressure, arthritis and asthma. She also is recovering from a back injury. To pay for them, she's been charging all her prescriptions at the end of each month on credit cards and puts off seeing her doctor because she's afraid he will give her a new prescription to pay for.

She said she is worried that she could be close to maxing out some of those credit cards. With the cost of living increase, Miller hopes she can afford to pay cash for at least some of the drugs.

"Anything helps when you haven't had (an increase) in two years," she said.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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