Key Points
-
Social Security retirees are getting a 3.6% benefit increase in 2027.
-
The benefit increase will happen automatically due to the COLA.
-
You can make a decision that would provide a far bigger benefit.
-
In 2027, Social Security retirees will receive a 3.6% raise. This benefit increase comes from the annual cost-of-living adjustment (COLA).
Social Security cost-of-living adjustments are built into the program to help protect the buying power of benefits. Without COLAs, inflation would erode the real value of Social Security. These COLAs are announced in October of the previous year, and many people eagerly await the news of the raise.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
The reality, however, is that a 3.6% raise doesn’t have much positive impact on retirees — especially given that the COLA is calculated based on a measure of inflation, so the goal is just to maintain buying power, not increase it.
So, while many retirees focus on the COLA, future retirees who want to make the most of their retirement may want to focus instead on a move that could increase benefits by 24%. That’s far more than the COLA is ever likely to be.
This one Social Security move could lead to a huge benefit increase
If you want to increase your Social Security benefits by 24%, there’s one thing you have to do: Delay your benefits claim.
Social Security has a system of early filing penalties and delayed retirement credits. If you claim at full retirement age, these don’t apply, and you collect your standard benefit. But if you claim early, you reduce your monthly check by the number of months you file early. And if you claim late, you increase it.
Early filing penalties reduce benefits by 6.67% annually for the first three years before FRA and 5% annually for additional years. A claim at 62 with an FRA of 67 results in a 30% reduction in Social Security benefits. A claim at 70, on the other hand, results in a 24% increase.
What does this look like in practice? If your benefit at full retirement age were $2,000, waiting three more years would increase it to $2,480. An extra $480 every single month in Social Security payments would give you $5,760 more to spend each year. And the higher your starting benefit, the bigger the impact.
That means waiting just three years beyond your FRA can give you 24% more money in payments for the rest of your life — tens of thousands of dollars more over time. Since this income source is protected against inflation and guaranteed to last as long as you do, that increase is well worth earning.
Make a plan to claim Social Security at 70
If you want to make the most of your retirement income and capture that 24% increase, make a plan as early as possible to do so. Most people don’t want to wait until 70 to retire, so aim to invest enough in your retirement plans to support yourself until Social Security kicks in, even if you retire earlier.
If you’ve already retired, it also may not be too late to get this boost to your benefits. If you started benefits less than 12 months ago, you could choose to rescind your claim and wait. You’ll have to repay all benefits collected on your work record, but it may be worth it if you can do so, as it could significantly increase your income later.
If more than 12 months have passed, you aren’t necessarily out of options either. You also have the option to suspend your benefits if you’ve already reached your FRA. When you suspend your benefits, you can start earning delayed retirement credits that increase them in the future, and you can earn those credits until age 70.
Of course, this only works if you can afford to support yourself with distributions from your 401(k), IRA, or other income sources. But if you can make that happen and earn that 24% Social Security benefits increase, the payoff could be huge.
The $23,760 Social Security bonus most retirees completely overlook
If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income.
One easy trick could pay you as much as $23,760 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Join Stock Advisor to learn more about these strategies.
View the “Social Security secrets” »
The Motley Fool has a disclosure policy.
