updated 10/19/2004 4:54:59 PM ET 2004-10-19T20:54:59

More than 47 million Americans receiving Social Security will get a 2.7 percent increase _ an extra $25, on average _ in their monthly checks next year, but much of the increase will be eaten up by higher Medicare premiums.

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The Social Security Administration announced the cost-of-living adjustment Tuesday, and the increase will start showing up in checks in January.

The latest increase was the largest since benefits rose by 3.5 percent in 2001. A 2.1 percent increase went into effect at the beginning of this year.

The annual cost of living adjustment, or COLA, is based on the rise in the government's Consumer Price Index from the July-September quarter of last year through the third quarter of this year.

The $25 will mean that the monthly check for the average Social Security retiree will rise from $930 this year to $955 next year.

However, the average retiree will see only a little over half of that increase because the government announced last month that monthly Medicare premiums for doctor visits are going up by $11.60 a month next year, a record in dollar terms.

Under law, no Social Security beneficiary will get lower benefits than that person is currently getting even if the Social Security cost-of-living adjustment does not cover the entire cost of the Medicare premium increase.

But advocates for the elderly said that protection still means that millions of Social Security beneficiaries at the low end of the benefit scale will see no gain at all this year because the COLA increase will be eaten up by the Medicare premium increase.

The 2.7 percent benefit increase will mean that the average retired couple will see their Social Security benefits rise from $1,532 a month currently to $1,574 next year, a gain of $42 per month.

John Rother, policy director at AARP, formerly the American Association of Retired Persons, said retired people were not only getting hit by higher Medicare premiums but also faced the prospect of soaring heating bills this winter.

"That means that many people will have no ability to keep up with inflation," Rother said.

The cost of living adjustments announced Tuesday will go to more than 52 million people. That includes 47 million people receiving Social Security benefits; the rest receive Supplemental Security Income payments that go to the poor.

The standard SSI payment will go from $564 per month to $579 per month for an individual and from $846 to $869 for a couple.

The average monthly Social Security payment for disabled workers will increase from $871 currently to $895 next year.

In the closing days of the presidential campaign, Democratic challenger Sen. John Kerry has accused President Bush of planning a surprise second-term effort to privatize Social Security, saying such a move would be a "disaster for America's middle class." The Bush campaign has called the charge "flat inaccurate."

Social Security will face a funding shortfall beginning in 2018 as more baby boomers retire, meaning the government's biggest benefit program will be paying out more in benefit checks than it is collecting in payroll taxes from current workers.

While Bush campaigned in 2000 on a program to partially privatize Social Security by giving younger workers the option of diverting some of their payroll taxes into private investment accounts, he has never pushed the proposal in Congress, in large part because of sizable transition costs that some estimate will top $1 trillion.

Monthly Social Security benefit checks have been adjusted automatically since 1975 to protect retirees' income from erosion caused by rising inflation. The largest one-year increase was a 14.3 percent jump in 1980, a period when the country was battling double-digit inflation.

About 9.9 million workers will have to pay higher payroll taxes next year because the maximum amount of Social Security earnings subject to the payroll tax will rise from $87,900 to $90,000. In all, an estimated 159 million workers will pay Social Security taxes next year.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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