updated 10/14/2005 10:00:44 AM ET 2005-10-14T14:00:44

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.

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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.

The average retired couple, both receiving Social Security benefits, will see their monthly check go from $1,583 to $1,648.

The standard SSI payment will go from $579 to $603 per month for an individual and $869 to $904 for a couple.

The average monthly check for a disabled worker will go from $902 to $939.

The Social Security Administration also announced Friday that 11.3 million workers will pay higher taxes next year because the maximum amount of Social Security earnings subject to the payroll tax will rise from $90,000 currently to $94,200 next year. In all, an estimated 159 million workers will pay Social Security taxes next year.

Monthly Social Security benefit checks have been adjusted automatically since 1975 to protect retirees’ income from erosion caused by rising inflation.

By law, the monthly increase in Medicare premiums cannot be higher than an individual’s cost of living adjustment. Social Security recipients whose cost of living increase will be less than the $10.30 premium increase next year will not be forced to pay the entire $10.30.

President Bush had hoped to get Congress this year to pass a Social Security overhaul he viewed as the centerpiece of his second term. It would have bolstered Social Security finances to deal with a looming funding crisis when 78 million baby boomers begin retiring and it would have allowed younger workers to create personal accounts. However, the measure has failed to attract widespread support in Congress.

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