The increase for 2006 represents the biggest hike since January 1991, when it was 5.4%, the Social Security Administration said. The rate has typically stayed at or below 3% a year since the early 1990s, except for 2000 when the increase in benefits was 3.5%.

This year's rise means retired workers will receive an estimated monthly benefit of $1,002 starting in January, up from the monthly $963 they're now seeing. Older couples who both receive benefits will jump $65 to $1,648 a month from $1,583.

The 52 million Americans who receive Social Security and Supplemental Security Income automatically have their benefits adjusted once a year. This year's raise is based on the consumer price index (CPI), a measure of consumer price inflation, from the third quarter of 2004 through the third quarter of 2005.

The cost-of-living increases are especially critical for the two out three older Americans who count on Social Security for at least half of their income, said Evelyn Morton, national coordinator of economic issues for the AARP, an advocacy and insurance firm for older Americans.

"It's the only inflation-adjusted income source most older Americans have," Morton said. "It's welcome in the sense that it's better than nothing, but for many it won't be much after you start paying what you need to pay" for things such as Medicare Part B and D premiums, which cover doctor's visits and the new prescription drug benefit.

Medicare Part B premiums, which are set to rise 13% or $10.30 to $88.50 from $78.20 on average in January, will consume about a quarter of the total average monthly Social Security benefit next year, Morton said.

And home heating bills that may jump as much as 50% this winter are non-negotiable for hypothermia-prone seniors, many of whom live on fixed incomes, she said. "There are so many things that will eat this up that it's going to be tough for many people."

Some workers also will see changes in their paycheck withholdings based on the increase in average wages. Starting in January, the maximum amount of earnings subject to the Social Security tax will rise to $94,200 from $90,000, the government said. That means about 11.3 million workers will pay higher taxes as a result of the new taxable minimum, of the estimated total 159 million workers who will pay Social Security taxes in 2006.