Social Security benefits to increase 3.6%

— -- For the first time since 2009, American retirees will receive an increase in their Social Security benefits. But even before it appears in their January benefits check, it could be eaten up by an increase in Medicare premiums.

The cost-of-living adjustment, or COLA, will be an increase of 3.6%. It will affect about 55 million Social Security recipients and another 8 million Americans who receive Supplemental Security Income (SSI).

Compared with previous increases, it's fairly moderate, says Polina Vlasenko, research fellow at American Institute for Economic Research. The last cost-of-living adjustment, in January 2009, was an uncommonly large 5.8%. Earlier increases were 2.3% to 4.1%.

The increase may lose some of its luster. Retirees may not see a lot, or any at all, of the increase because their Medicare premiums also can increase, says Paul Gada, personal finance director for Allsup Medicare Advisor, a provider of Social Security and Medicare consultation services.

For those who are enrolled in Medicare, their insurance premiums are automatically deducted from Social Security checks. But Medicare cannot reduce Social Security checks from year to year.

"So in the past two years, when there was no COLA increase, Medicare deductions could not increase," Vlasenko says. "This provision had never been used until the last two years, because there was always a COLA increase before then."

The Medicare premiums are expected to be determined by Medicare next month.

"The COLA increase is good news, but it doesn't do the whole trick," says Merton Bernstein, professor emeritus at the Washington University in St. Louis School of Law. "It doesn't cope with the higher out-of-pocket cost of seniors and disabled people."

The annual cost-of-living adjustment is tied to an inflation measure released Wednesday. The measure, which was adopted in the 1970s, produced no COLA in 2010 or 2011 because inflation was too low. Those were the first two years without a COLA since automatic increases were enacted in 1975.

On average Social Security recipients receive $1,082 a month, or about $13,000 a year. The increase would add about $39 a month, or $468 a year.

"Social Security is the most important source of income by far for most retirees, and for a huge percentage it is the only income they have," says David Certner, legislative policy director for AARP. "But getting this increase doesn't mean they are getting ahead. It just keeps them from falling further behind."