Retirement: What to expect in 2010

Wednesday, December 23, 2009 - 5:07pm

UNDATED - In most years, retirement benefits increase to keep up with inflation. But 2010 will be far from typical. Because of a drop in the consumer price index, government payouts and tax incentives to save for retirement will generally stay the same. At the same time, out-of-pocket retiree health costs, especially for prescription drugs, will continue their steady climb. Here's a look at what will happen to retirement benefits in 2010.

No Social Security increase. Monthly Social Security checks for most beneficiaries will not increase in 2010. Retirement payouts are tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, which fell between the third quarter of 2008 and the third quarter of 2009. Next year will be the first without a Social Security increase since cost-of-living adjustments went into effect in 1975. (There is a chance of a change, though; several bills to give retirees a raise are being considered by Congress.) The maximum amount of earnings subject to the Social Security tax will also remain the same at $106,800.

Higher Medicare Part B premiums for some. Most current Social Security recipients will continue to pay $96.40 each month for Medicare Part B medical insurance, the same amount as in 2009. But for new enrollees, Medicare Part B monthly premiums will be $110.50, a 15 percent increase from 2009 prices. Retirees with incomes greater than $85,000 ($170,000 for couples) also will pay higher premiums, ranging from $154.70 to $353.60 each month, depending on the income reported on their 2008 tax return.

Larger Medicare Part D premiums and out-of-pocket costs. The average monthly Part D premium will increase by 11 percent in 2010 if beneficiaries remain in their current plans, according to a recent analysis of 2010 plans by researchers at the Kaiser Family Foundation, Georgetown University, and the University of Chicago. About 61 percent of drug plans will charge a deductible in 2010, and 80 percent will have a coverage gap—or "doughnut hole"—during which beneficiaries must pay 100 percent of their drug costs, up from 45 percent and 75 percent respectively this year. "For those in a plan that increases its premium, people who have their Part D premiums deducted from their Social Security check could see a reduction in their Social Security payments beginning in January," says Tricia Neuman, director of the Medicare Policy Project at the Kaiser Family Foundation.

401(k) contribution caps stagnant. The contribution ceiling for 401(k)'s will stay the same next year. The maximum amount will remain $16,500. Those age 50 and older will be able to make catch-up contributions of an additional $5,500 next year, which is also unchanged from 2009. "There was speculation about whether that $16,500 would be reduced for 2010 because there was negative inflation in 2009, but the limits are not going down," says Mark Iwry, a senior treasury official. Workers with a retirement plan who earn less than $66,000 annually ($109,000 for couples) also can contribute up to $5,000 to a traditional or Roth IRA, and workers age 50 and over can contribute up to $6,000. The income limits don't apply to couples who don't have a retirement plan through their jobs.

Pension insurance limits stay the same. The federal government insures most private-sector pensions up to certain limits. The maximum amount that will be replaced by the government if your employer goes bankrupt in 2010 will be $54,000, which is unchanged from 2009. Insurance amounts are indexed to Social Security benefits, which will also remain the same in 2010, according to the Pension Benefit Guaranty Corp. As in previous years, the maximum insured pension is higher for workers who delay retirement and lower for those who retire early. Annual maximums are reduced for workers who elect survivor's benefits for a spouse.

401(k) matches return. There is some good news for retirement savers in 2010. Many employers that suspended their 401(k) match in 2008 or 2009 plan to resume it in 2010. Among Fidelity-administered 401(k) plans, 27 percent of employers that cut contributions to employee retirement accounts have already resumed the match or plan to reinstate it next year. Another survey, by the Profit Sharing/401(k) Council of America, found that almost half (47 percent) of companies that suspended their employee match are planning to restore it within the first quarter of 2010. Both studies found that large employers were especially likely to restart the match. Most employers (70 percent) that expect to reinstate their retirement account match are planning to pick up where they left off, according to a recent survey of large employers by consulting firm Watson Wyatt. Other firms surveyed will reintroduce the match at a lower level (13 percent) or will vary the amount of the match based on company profits (17 percent). Robyn Credico, Watson Wyatt's director of defined contribution consulting, says: "They will give you a match, but it will depend on how well the company has done."