Social Security COLA: 6 Things You Need To Know Well Before You Retire



While retirees and SSI recipients may be celebrating the generous 8.7% COLA increase in 2023, you may be curious how COLAs (or cost-of-living adjustments) will affect your future income as you plan to retire .

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Here are a few things to know about COLA at every stage of your retirement planning:

1. COLA increases vary – and may not happen

The cost-of-living adjustment is typically an increase in Social Security benefits that begins in January each year based on the previous year’s inflation. The Social Security Administration has issued COLA increases every year since 1975, with the exception of a handful of years when COLA was set at 0.0%.

The increases ranged from less than 1% to 14.3% in 1980. This year’s 8.7% increase is the fourth highest in history and the largest since 1981.

2. Social Security calculates your benefits by your 35 highest-earning years

When you turn 62, whether you decide at that time to claim your benefits or wait until full retirement age, the SSA calculates your primary insurance amount (PIA) based on your highest 35 years of earnings. If you apply for a benefit at the age of 62, you will receive 75% of that amount.

3. If you continue to work after the age of 62, your PIA will be recalculated

Many people continue to work full-time after age 62 and may even earn more than they did in their earlier years. You don’t lose, though, because the SSA recalculates your PIA to account for your top 35 earning years as they occur.

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4. Unclaimed benefits also increase due to COLA

Even if you don’t claim Social Security benefits at age 62, you will receive COLA increases in the same way as beneficiaries. When you finally start collecting Social Security, your benefits will be adjusted to reflect all COLA increases that occurred between the time you reached age 62 and the time you started collecting benefits.

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COLA benefits are compounded annually, even if you don’t file for benefits after age 62.

5. COLA benefits are calculated based on the amount you receive from Social Security

If you start claiming benefits at age 62, your PIA will be reduced by 75%. Your COLA increase is calculated based on that figure, not the full amount you would receive if you waited until full retirement age to claim. This can lead to large differences in the amount of benefits.

6. Your benefits can increase significantly for each year you retire

Let’s look at someone who started receiving benefits in 2021 at the age of 62. By the time they hit 70 — with their PIA adjusted for COLA increases of only 2.5% — they would be receiving $2,330 a month. If they waited until age 70 to claim benefits, they would receive $4,101 per month. This is based on an annual average COLA of 2.5%. The increase will be even greater if you look at years like 2023, when COLA increased by 8.7%.

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Cannon Financial Strategists provide a helpful chart that shows you some hypothetical scenarios based on when you decide to claim Social Security benefits.

Some people may need to claim Social Security benefits before age 70 if they can no longer work and have no other retirement savings. But if you can delay claiming Social Security until age 70, you’ll have more income at times when you might need it for travel, health care, or just to keep up with rising costs.

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The Valley Voice
The Valley Voice
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.


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