Next year's boost, announced Thursday by the Social Security Administration, is up from this year's increase of 1.4 percent, but still reflects an economy with low inflation.
The increase begins in January and covers more than 51 million Americans. It is tied to an index of consumer prices, the government's chief measure of inflation.
Monthly benefit checks have been adjusted automatically since 1975 to protect retirees' income from erosion by rising inflation.
The average monthly benefit for retirees will rise from $903 to $922. For the average couple receiving benefits, the monthly check will jump from $1,492 to $1,523, an increase of $31.
The maximum monthly benefit for disabled workers will increase from $844 to $862.
But for most older Americans, much of the increase will be wiped out by a 13.5 percent hike in Medicare premiums that also takes effect next year. Premiums will rise $7.90 a month to $66.60.
Medicare is very much on the minds of lawmakers in Congress with political attention turning to next year's election. Both parties are eager to reach an agreement this year, with President Bush urging action on the issue.
House and Senate leaders working on a Medicare prescription drug bill moved closer to a consensus Wednesday night on requiring higher-income seniors to pay more than other beneficiaries for coverage.
If enacted, that would mark a historic policy shift for a program that has always provided a standard benefit at a fixed price for every participant.
When Medicare began in 1967, premiums were set at $3 a month. Next year's 13.5 percent increase is the third-largest in the program's history.
The largest premium increase was in 1988, at 38.5 percent, followed by 1993, when the jump was 15.1 percent.
As for Social Security, the largest annual increase was 14.3 percent in 1980, reflecting double-digit inflation of that era. Adjustments in the past decade have remained under 3 percent with inflation pressures moderating.
The annual adjustment is based on third-quarter consumer price changes in 2002 through the third quarter of this year. This allows the Social Security Administration time to get the raises included in January checks.
The Social Security Administration also announced that for working Americans, the maximum annual earnings subject to taxes next year will rise to $87,900 from $97,000. That means a tax increase for about 9.2 million of the 156 million workers who will pay Social Security taxes next year.
Mr. Bush campaigned in 2000 on the idea of letting younger workers invest a portion of their payroll taxes in the stock market to help shore up future funding for the retirement system.
Instead, Social Security has taken a back seat to the war on terrorism and even Medicare, which analysts say faces a greater funding crisis.
In Congress, lawmakers are working on compromise legislation to add a prescription drug benefit to Medicare as well as overhaul the basic health care program.
Republicans in particular want to inject competition into Medicare by inviting private insurers to compete for seniors' health care dollars, arguing that would modernize the 38-year-old government program as well as hold down future government spending.
Key lawmakers reported a growing consensus late Wednesday for the historic step of requiring higher-income seniors to pay more for their Medicare than other beneficiaries.
The development marked an important step toward agreement on an overall Medicare prescription drug bill. But lawmakers said no details had yet been settled.