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There’s been a lot of coverage around the historically high cost-of-living-adjustment, or COLA, for Social Security benefits for 2023. One matter that has been confusing people is just how this increase affects their benefit — do they have to be receiving a benefit in order to get the COLA?
Here’s an example from an email I received recently:
I turn 70 in March 2023. I’ll receive the full 32% increase in delayed retirement credits. Social Security benefits for all current recipients are going to increase 8.7% in 2023. Wouldn’t it be advantageous to me to sign up for my benefit starting in November 2022? I would receive my first check in December 2022 with a reduction of 2.67% for the earlier start date of November 2022 vs. March 2023, resulting in delayed retirement credits of 29.33%. But, in January 2023, my Social Security check would be increased by 8.7%, offsetting the 2.67% loss for earlier start date, resulting in a net increase overall of 6.03% by starting in November 2022 vs. March 2023. Does this seem like a good strategy to adopt given the large increase approved for 2023?
It is not necessary to apply for benefits prior to the beginning of the new year to receive the increase for COLA. This is due to the method that the Social Security Administration uses to calculate your benefit, regardless of when you file for the benefit.
Read: Social Security recipients are missing out on $182,000 by claiming too early, study finds
As noted in Social Security’s POMS RS 00605.010 Initial PIA Computations, when your Primary Insurance Amount, or PIA, is initially calculated the cost of living increases are applied from the date of your first eligibility, up to the date of your actual entitlement.
I realize this is a lot of gobbledygook.
Essentially what the rule says is that when you apply for benefits, any COLA that has been put into effect since your initial eligibility is applied to your PIA, and so therefore you achieve the COLA increase. Your initial eligibility occurs for retirement benefits at your age 62. Then any reduction or increase factors due to your filing age are applied.
So, the only thing that happens to the writer if he does file for benefits prior to the end of the year is that he’ll permanently reduce his benefit by 2.67%. Granted, he will receive a few months’ additional checks during that time, so the break-even point probably goes out quite a few years. But since he’s waited this long, seems like a shame to file early and take the lower benefit.
Now, if you’ve already pulled the trigger and filed early because you thought you had to in order to receive the COLA, you have an option available to you. You could use the one-time “do over” option, which allows you to withdraw your application for benefits and repay any benefits received, resetting your record as if you had never filed before. You can do this once in your lifetime, and you must do it within 12 months of your initial filing for benefits. Then you could refile for benefits once you reached age 70, as you had originally planned.
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