Will You Miss 2023’s Giant 8.7% COLA if You Delay Social Security?

Delaying Social Security can substantially bolster your benefits. Someone who takes Social Security at 70 will receive a monthly check that’s about 77% higher than someone who claims at 62.

But in 2023, beneficiaries will receive an 8.7% cost-of-living adjustment — the highest in more than four decades. So if you’re eligible for Social Security but haven’t started benefits, you may be wondering: Am I missing out on 2023’s gigantic 8.7% pay raise?

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Will delaying Social Security cause you to miss the 8.7% COLA?

The short answer is no. If you’re eligible for Social Security, you won’t miss out on 2023’s unusually high COLA of 8.7%. To understand why, you need to know how Social Security calculates benefits.

Social Security payments are based on your primary insurance amount. That’s the benefit you’re eligible for at full retirement age, which is 67 if you were born after 1959. But you can start benefits as early as 62. So the year you turn 62 and become eligible for benefits, Social Security automatically applies each year’s COLA to your primary insurance amount, regardless of whether you’re getting benefits.

Suppose your primary insurance amount is $2,000 at full retirement age. You could start benefits as soon as you turn 62, but your benefit would be about 30% lower at $1,400. If you weren’t getting benefits the year an 8.7% COLA was applied, your primary insurance amount would become $2,174.

Starting benefits one year later, at age 63 instead of 62, means your benefit would be reduced by 25% versus 30%. But regardless, the COLA has been applied to your primary insurance amount, which is now $2,174.

If you started your benefit at age 62, your check would increase to $1,521 (or 70% of $2,174). If you waited a year and claimed at 63, your starting check would be $1,630 (or 75% of $2,174). Either way, the COLA gets applied to your primary benefit.

High COLAs can make delaying Social Security especially lucrative if you’re able to wait past full retirement age and take advantage of delayed retirement credits. You’ll earn 8% more for each year until age 70, when your benefits max out. But every year, the primary insurance amount gets higher, and those 8% credits are based on the higher amount.

For example, say your primary insurance amount is $2,000 and you’ve reached full retirement age of 67. An 8.7% COLA takes effect, but you delay benefits by exactly one year and claim at age 68. Your primary insurance amount becomes $2,174. But on top of that 8.7% COLA, you’re getting an extra 8%. So you’ll receive $2,347 for your first Social Security check.

When should you start Social Security?

The 8.7% COLA shouldn’t have a big impact on when you start Social Security. If you’re eligible for benefits, the COLA gets applied to your base benefit regardless of when you start getting payments. Typically, the best time to take Social Security is when you really need the money.

Holding out as long as possible to maximize your Social Security can be a smart move, particularly if your health is good and you’re able to keep working. But most people don’t have that luxury.

If you’re unable to work, starting benefits earlier may be your only choice. Taking benefits earlier also makes sense if you’re in poor health and want to maximize your lifetime benefits. Finally, it’s fine to accept reduced payments if earlier benefits will help you enjoy the quality of life you want in retirement.

Time your Social Security based on your own life’s circumstances, not the COLA for any given year. If you qualify for payments, you’ll benefit from the COLA regardless of when you get your first Social Security check.

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