Source: Social Security Administration.

This article was updated on Oct. 22, 2014.

Millions of retirees rely on Social Security for a huge portion of their overall incomes. Given the meager benefits that many receive, the annual cost-of-living adjustments to Social Security benefits are crucial to help recipients make ends meet. Yet as retirees look forward to next year, they should prepare themselves for another small Social Security increase in 2015.

Final figures are now available, and retirees hoping for a big boost to their monthly checks will instead have to make do with just a 1.7% increase in what they receive from Social Security next year. Looking at the process that the Social Security Administration follows in determining each year's cost-of-living adjustment can help you understand why so many retirees have been frustrated about the size of their benefits lately.

How was your Social Security increase for 2015 calculated?

The federal government indexes Social Security benefits to inflation in order to help ensure that retirees' benefits keep up with rising prices, which erode the purchasing power of those benefits. Cost-of-living adjustments take effect each year on Jan. 1, with January checks being the first to reflect Social Security increases.

Social Security Administration building. Source: Wikimedia Commons.

But the Social Security Administration needs time to implement cost-of-living adjustments. The SSA uses inflation figures from the summer months of July, August, and September to determine how big each year's adjustment will be. Once all three figures are available, the SSA takes the average inflation of those three months in the current year and compares it to same average of the previous year. The difference defines the amount that benefits will go up at the beginning of next year.

Final inflation figures for September became available on Oct. 22, confirming the 1.7% increase in inflation levels over 2013. Looking at past trends, the increase in Social Security payments for 2015 is consistent with what we've seen in recent years -- and many of those drawing benefits will be disappointed once again.

COLAs: Better than last year -- but still small

The news for Social Security recipients isn't all bad. The final figures show that the rise in Social Security benefits will at least be larger than last year's, matching their best level in three years. At the beginning of 2014, recipients got just a 1.5% boost to benefits, and that followed a 1.7% rise for 2013.

Nevertheless, recipients were a little disappointed with how the final figures turned out. Based on preliminary figures for the CPI for Urban Wage Earners and Clerical Workers, based on which Social Security assesses cost-of-living adjustments, many had hoped for a slightly larger 1.8% growth rate.

Source: Social Security Administration. Note: Year reflects the year for which inflation data was measured; benefits increased at the beginning of the following year.

The reason for the slight decline from the original projection was what happened to inflation in August and September. As happened in some past years (most recently 2008), the CPI-W trended slightly downward during the summer months, causing Social Security COLAs to come in smaller than one would have projected based on July figures. August's CPI-W dropped 0.2%, and September's 0.1% increase wasn't enough to offset that larger drop.

Prepare to make do with a modest Social Security increase in 2015

With no huge spike in inflation having occurred over the summer, Social Security recipients now have to resign themselves to yet another year in which COLAs fall below the 2% mark. For retirees who rely on the income that Social Security provides, that news is far from welcome. However, so long as inflation remains under control, retirees will have to accept that their Social Security checks won't get much bigger for the foreseeable future.

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