Social Security benefits to increase in 2006

updated 10:00 a.m. ET Oct. 14, 2005

WASHINGTON - More than 48 million Americans will get a 4.1 percent increase in their monthly Social Security checks next year, the largest increase in more than a decade. For the average retiree, it will mean an increase of $39 a month.

The cost of living adjustment, or COLA, was announced Friday by the Social Security Administration. It will be the biggest increase since a 5.4 percent gain in 1991. The increase last January was 2.7 percent.

The inflation adjustment is based on the amount prices — as measured by the Consumer Price Index — have risen in the July-September quarter compared with the same period a year ago. Rising energy costs have driven inflation sharply higher this year, including a record monthly surge in energy costs in September related to the Gulf Coast hurricanes.

The average Social Security benefit recipient will see his or her monthly check increase from $963 this year to $1,002 next year.

But about one-fourth of the monthly cost of living increase will be eaten up by a rise in Medicare premiums. The government earlier announced that the monthly Medicare premium that goes to pay for doctor’s visits and other services will increase by $10.30 a month starting next year.

And retirees and all Americans will be facing sharply higher energy bills this winter. The government is estimating that the average household will pay 48 percent more this year to heat with natural gas and 32 percent more for heating oil.

“It is going to be a tough winter for many seniors. Not only will they face higher Medicare premiums but record gasoline prices and higher home heating bills as well,” said Mark Zandi, chief economist at Economy.com, a private consulting firm.

In addition to the higher premium for Medicare Part B, Medicare recipients who decide to take advantage of the new prescription drug benefit will start paying a premium of around $32 per month in January. The amount will vary depending on which plan they choose.

John Rother, policy director at AARP, said that most seniors are going to find that this year’s cost of living increase will fall short of dealing with their rising bills.

“Clearly, the COLA is not going to be enough to offset these higher costs,” he said.

The cost of living adjustment announced Friday will go to more than 52 million people. That includes more than 48 million receiving Social Security benefits and the rest receiving Supplemental Security Income payments which go to the poor.

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