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No one yet knows exactly how big the automatic benefit increase will be. But experts are predicting that Social Security beneficiaries will see their monthly benefit rise by at least 5%, perhaps more. In calculating the COLA, Social Security will look at inflation over the 12 months ended September 2008. For the year ended August 2008, inflation as measured by the consumer price index (CPI-W) was running at 5.9%.

That means the average monthly benefit could rise to about $1,142 from $1,079 now, a $63 increase.

What's more, unlike in years past, that increase won't be eaten up entirely by increases in Medicare Part B and Part D premiums, though it will be close. For about 95% of Medicare recipients, Part B premiums will remain at $96.40 in 2009, the Centers for Medicare and Medicaid Services said in September.

And the average monthly premium for standard beneficiaries in the Medicare Part D drug program is expected to rise to $28 next year, a $3 rise, the CMMS said Thursday. That means the average Social Security beneficiary will have a net monthly gain of roughly $60.

Sadly, that net gain will be eaten up by plenty of other living expenses, including energy, housing, health care, and food. And the net effect is that seniors are not keeping pace with inflation; they are falling further and further behind. The cost-of-living adjustment "doesn't reflect what people's real increase in their cost of living is," said Joseph Matthews, attorney, author of "Social Security, Medicare & Government Pensions," and contributing editor to Caring.com.

To be sure, the Social Security COLA is a godsend for many Americans, especially when home values and retirement portfolios are tanking. "Social Security is the one and only source of retirement income that increases with inflation," said Dallas Salisbury, president and chief executive of the Employee Benefit Research Institute.

Still, Social Security's COLA has plenty of critics. Some note that there's a lag between when the COLA announcement is made and when the monthly benefit increase takes effect. Others suggest that Social Security's COLA is not tied to the right measure of inflation. Since its inception in 1973, the COLA has been tied to the CPI-W, which measures the cost of a basket of goods and services for the average consumer. But many advocates, including AARP and the Senior Citizen League, note that the cost of a basket of goods and services for the average retiree has risen faster than average person's basket of goods and services.

And indeed, that's the case. According to a little-known and experimental index that the Bureau of Labor Statistics uses to track the rate of inflation for Americans age 62 and older, the cost of goods and services has risen on average 3.3% for older adults over a 25-year time period vs. 3% for most other consumers.

According to an AARP Bulletin on the subject, medical care was largely to blame. It rose 269% from December 1982 through December 2007 while inflation for other goods and services rose 115%.

Meanwhile, from 2000 to 2008 typical senior expenses rose 88% vs. 24% for regular inflation, according to a Senior Citizens League Study published in May. A person receiving the average Social Security monthly benefit of $816 in 2000 would get $1,014 in 2008. But based on the study's findings, that person's benefit would need to be $1,532 a month this year to maintain her 2000 purchasing power. The net effect? Seniors have lost 50% of their purchasing power since 2000.

For his part, AARP's Legislative Director David Certner said in August that a more equitable COLA adjustment for Social Security recipients would be wise, especially since the monthly benefit check is the only income for a third of all U.S. retirees and a major portion for another third. Others, including U.S. Rep. Charlie Gonzalez, D-Texas, have called for the use of the CPI-E as the measure by which the COLA is calculated.

To be fair, the CPI-E is not without its drawbacks. A report by the Bureau of Labor Statistics notes for instance that expenditures for such things as medical care and shelter are weighted more heavily in the CPI-E than in the regular inflation index. In addition, the shopping outlets in the retiree inflation index may not be representative of the places that older Americas shop. And the prices collected may not reflect the discounts that senior citizens receive.

All that said, it's unlikely Social Security will use the CPI-E instead of the CPI-W to calculate the annual COLA anytime soon. For one, there's no political will or ability to do so at the moment. Using the CPI-E would certainly mean an increase in the automatic monthly benefit. And any increase of that sort might accelerate further how fast Social Security goes into the red.

So where does that leave seniors? Well, if one thing is certain it's this: Finding investments that provide steady income with a 5% cost-of-living adjustment may not be sexy. But it sure sounds better than nearly every other investment right now.

––Dow Jones Newswires