By Rachelle Younglai
WASHINGTON (Reuters) - Social Security retirement benefits for nearly 62 million Americans will go up 1.7 percent next year, the Social Security Administration said on Tuesday, a small increase that may not cover rising premiums for the Medicare elderly health insurance program.
The average Social Security benefit will rise about $21 a month to a total of $1,261 per month, starting in January 2013 the Social Security administrator said. That amounts to $15,132 per year.
The administrator warned that for some beneficiaries, their Social Security increase may be partially or completely offset by increases in Medicare premiums.
"While this modest increase will help, much of the (cost-of-living adjustment) will be consumed by health care and prescription costs, which continually outpace inflation," said the AARP, an influential advocacy group for the elderly.
Benefits are recalculated annually based on the third quarter's rate of consumer inflation. Government data released on Tuesday showed that U.S. consumer prices increased 0.6 percent in September due to higher gasoline costs.
The cost-of-living adjustment will also push up the maximum amount of annual wages that are subject to Social Security tax to $113,700 from $110,100, according to the administrator.
The scheduled increase in Social Security benefits will likely do little to spur reforms for the retirement program, which is on track to start running out of funds in 2033.
With $600 billion worth of tax increases and budget cuts set to take effect at the end of the year, Washington is scurrying to figure out how to protect the U.S. economy from a series of financial shocks.
Tax cuts for all Americans that were enacted under the previous Bush administration are due to expire December 31 and across-the-board budget cuts are slated to start in January.
In addition, the payroll tax cut that funds the Social Security program is set to revert to 6.2 percent from 4.2 percent at the end of the year.
That tax break for 160 million Americans was funded by increasing the fees the government-controlled Fannie Mae and Freddie Mac charge lenders to guarantee new loans over a 10-year period.
Talk of extending the payroll tax cut worries the elderly advocacy groups, which say Social Security could be undermined if it relies on general government revenues instead of a separate, dedicated funding stream.
(This story corrects date and increase to $21 from $40 in paragraph 2)
(Reporting By Rachelle Younglai; Editing by Stacey Joyce)