Social Security benefits get another tiny raise

Social Security recipients will get a 1.7% cost-of-living raise starting in January, the Social Security Administration announced Wednesday.

For the average retired person receiving Social Security, monthly payments would rise $22 to $1,328 from $1,306. The average couple's benefits would rise to $2,176 from $2,140. Average annual payout: $15,936.

The maximum monthly Social Security benefit for a single worker at full retirement age will rise to $2,663 in 2015 from $2,642.

The increase will affect nearly 64 million Americans.

The cost-of-living increase was determined by the change in the government's Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter 2013 compared with the third quarter of 2014.

Those who pay Social Security taxes will pay a bit more as well. The maximum amount subject to Social Security tax will rise to $118,500 from $117,000. Of the estimated 168 million workers who will pay Social Security taxes in 2015, about 10 million will pay higher taxes because of the increase in the taxable maximum, Social Security says.

Employees pay Social Security taxes at a 7.65% rate, with employers paying an equal amount. The self-employed pay the full 15.3% rate.

Although the raise is small, it's important, says Christopher Jones, chief investment officer for Financial Engines. "The main thing is that payments do, in fact, go up with inflation," Jones says. Social Security recipients got a 1.5% raise this year and a 3.2% increase in 2012.

Social Security is vital to most retirees, and keeping up with inflation is vital: 90% of those 65 and older get Social Security payments. Among older retirees, 22% of married couples and 47% of unmarried people rely on Social Security for 90% or more of their income.

Although you can buy inflation-adjusted annuities, which provide income for life adjusted for inflation, they are expensive, says Jones. "For many people, the sum-total of their Social Security benefits are the most valuable part of their retirement nest egg," Jones says. "The sum total of what individuals receive over their lifetime is well into the hundreds of thousands of dollars, and for married couples, it's well into a million dollars."

The COLA also affects benefits for about 4 million disabled veterans, 2.5 million federal retirees and their survivors, and more than 8 million people who get Supplemental Security Income, the disability program for the poor. Many people who get SSI also receive Social Security.