Last Friday, the Social Security Administration announced its increases for 2006.
1. Seniors receiving Social Security benefits will see a 4.1 percent increase in their monthly checks beginning in January. This Cost-of-Living Adjustment is the largest percentage increase since 1991, when it rose 5.4 percent from 1990. Automatically increasing each year, Social Security benefits are based on the Bureau of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers.
Social Security is the major source of income for most elderly. According to the Social Security Administration, approximately nine out of ten persons aged 65 and older receive Social Security benefits. Of these seniors, 22 percent rely on their Social Security benefits as their only source of income.
2. The age a senior is eligible to collect full Social Security benefits will increase in 2006. Currently, those eligible to receive full benefits in 2005 (those born in 1940) reach “full retirement age” when they turn 65 years old and six months. Those born in 1941 must wait until they are 65 years and eight months old to reach full retirement age. This retirement age is scheduled to increase in two-month increments each year. By the time those born in 1960 reach their mid-sixty’s, age of full retirement will be 67 years old.
Regardless of this full retirement age, a person can choose to receive Social Security benefits as early as age 62. If you choose to receive your benefits early – before your full retirement age – your monthly benefits will be permanently reduced. To receive your full benefits, you cannot begin receiving benefits until you reach your full retirement age.
3. In 2006, an increase in the amount of earnings subject to taxation under Social Security takes effect. Currently, annual payroll earnings up to $90,000.00 are required to be taxed under Social Security. Any earnings beyond this limit are not taxed under Social Security. This maximum-earnings limit increases to $94,200.00 beginning next year.
Social Security is primarily financed through this payroll tax. Specifically, employers and employees each pay 6.2 percent of the employee’s wages up to the year’s maximum-earnings limit, i.e., $90,000.00 in 2005. In 2004, 84% of Social Security’s income came from this dedicated payroll tax. Earnings from interest and taxation benefits provided the remaining 16%.
Social Security is largely a ‘pay-as-you-go’ system with today’s workers paying for the benefits of today’s retirees. Presently, there are more workers contributing to Social Security than there are retirees receiving benefits. But because people are living longer and the birth rate is gradually decreasing, the number of workers per retiree has fallen from 16.5 workers to 1 retiree in 1950 to 3.3 workers to 1 retiree in 2005. It is estimated that within 40 years, this ratio will be as low as 2 workers to each retiree.
You can find more information about Social Security and even apply for your Social Security benefits through the Social Security Administration’s website (www.ssa.gov) or by contacting Ardmore’s Social Security Administration offices located on 1220 Merrick Drive, Ardmore; 223-8378.
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