1) Cost-of-living adjustments (COLAs) increase Social Security benefits each year to offset inflation. These adjustments affect both current and future benefits.
2) COLAs increase benefits by indexing past earnings to current wage levels and then applying the COLA percentage to the primary insurance amount (PIA) each year.
3) Delaying benefits results in substantially higher benefits due to avoiding reductions and getting larger annual COLA increases applied to a higher starting benefit amount.
3. Starting benefit including COLAs and see what Boomer Bob’s COLA raise would be when
actuarial reduction or delayed credits he turns 71 depending on when he started benefits.
Year Age COLA- Benefit as % of Starting Again, we’ll assume 2.8%
adjusted PIA if he applies benefit
PIA this year Benefit raise at age 71 if COLA is 2.8%
2011 62 $2,391 75.0 $1,793 Age COLA- Monthly Annual
2012 63 $2,477 80.0 $1,981 benefit adjusted raise at age raise at age 71
started benefit at 71 if COLA is if COLA
2013 64 $2,546 86.7 $2,207 age 70 2.8% is 2.8%
2014 65 $2,618 93.3 $2,442 62 $2,254 $63 $756
2015 66 $2,691 100 $2,691 63 $2,403 $67 $804
2016 67 $2,766 108 $2,987 64 $2,605 $73 $876
2017 68 $2,844 116 $3,299 65 $2,804 $78 $936
2018 69 $2,923 124 $3,625 66 $3,005 $84 $1,008
2019 70 $3,005 132 $3,966 67 $3,245 $91 $1,092
(Assumes 3.6% COLA in 2012 and 2.8% thereafter) 68 $3,486 $98 $1,176
69 $3,727 $104 $1,248
As you can see, there’s a huge disparity between
70 $3,966 $111 $1,332
the $1,793 he’ll receive in 2011 if he starts at 62, and
the $3,966 he’ll receive in 2019 if he starts at 70.
Note how much bigger the raises are on the higher
So let’s even things out a bit by looking at what his
benefit amounts. We can assume that all Social
benefit will be in 2019, when he is 70, depending on
Security recipients are celebrating the 3.6% COLA
when he started benefits.
increase for 2012. But some recipients are probably
Benefit at age 70 based on claiming age celebrating more than others. These would be the
Year Age Age benefit COLA-adjusted ones who received higher raises because the 3.6%
started benefit increase was applied to a higher benefit amount.
2019 70 62 $2,254
2019 70 63 $2,403 In today’s low interest rate, low return environment,
2019 70 64 $2,605 the fixed Social Security formula that escalates the
2019 70 65 $2,804 starting benefit for delayed claiming is looking like
2019 70 66 $3,005 a better deal all the time. And when COLAs are
2019 70 67 $3,245 applied to the higher amounts, annual raises become
2019 70 68 $3,486 significant as well.
2019 70 69 $3,727
2019 70 70 $3,966 Elaine Floyd, CFP®, is the Director of Retirement
and Life Planning, Horsesmouth, LLC., where she
(Assumes 3.6% COLA in 2012 and 2.8% thereafter)
focuses on helping people understand the practical
So his income at age 70 will be substantially lower and technical aspects of retirement income planning.
if he applies at 62 than if he applies at 70. Horsesmouth is an independent organization
providing unique, unbiased insight into the most
One of the points we like to make when encouraging critical issues facing financial advisors and their
clients to delay benefits is that COLAs magnify the clients. Horsesmouth was founded in 1996 and is
disparity between early and late claiming. So let’s located in New York City.
Please refer to "Disclosure Stuff" page on website BetterFinancialEducation.com
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