In Part 1, The Easiest Way to Get a Higher Social Security Benefit, I showed how your benefit will increase every year you delay claiming after age 62. In this still low interest rate environment, delaying your Social Security benefits is one of the best deals around. But the deal gets even better, because the annual COLA increases between ages 62 and 70.
COLA stands for the Cost Of Living Adjustment, and it is tied to the annual rate of inflation. Because of Social Security’s COLA feature, whatever the percentage rate of inflation that year, everybody receiving their Social Security benefits will receive that same COLA percentage increase in their monthly benefit the next year.
The rate of inflation in the year 2022 was 8.7%. In January 2023, everybody receiving Social Security saw their monthly benefit increase by 8.7%. If your monthly Social Benefit was $2,000 per month, then your benefit was increased to $2,174 ($2,000 x 1.087). That is an increase of $174 per month, or $2,088 for the year.
If you are between 62 – 70, and have not claimed your Social Security yet, you still benefit from COLA increases. For every year you delay claiming past age 62, you will receive those minimum guaranteed increases of 6.67% – 8.33% plus any COLA increases on top of that.
Let’s take a look at how this works:
The top chart (Chart 1) is the same chart from Part 1. It shows the minimum guaranteed increases you will receive for every year you delay claiming past 62 to 70. Those minimum annual guaranteed benefit increases range between 6.67% to 8.33%.
Chart 2: BENEFIT AMOUNTS WITH ANNUAL COLA INCREASES
This new chart (Chart 2) shows the actual annual COLA increases over the last 8 years. This chart, and example, assumes you turned 70 in 2023.
Without the annual COLA increases, your benefit is guaranteed to increase by 6.67% to 8.33% for every year you delay claiming it past age 62. It also shows, that the annual COLA increases can grow your benefit even more.
Look at 2017
In 2017, you were 63, the COLA increase for that year was 0%. That means there was no inflation that year. The next year, at age 64, the COLA increase was only 0.03%, hardly any inflation that year either. But the years after that, the annual COLA increases ranged between 1.3% to 8.7%. Because of the low inflation years at age 63 and age 64, it did not increase your benefit by much. But the with the higher COLA increases from age 65 to age 70, the annual increases in your benefit ranged between 8.91% at age 67 to 16.20 % at age 70.
Please notice your age 70 benefit without the COLA increases of $2,480 and compare that to your age 70 benefit of $3,090 after the actual COLA increases over the previous 8 years were applied. Your benefit increased by $610 per month ($3,090 – $2,480). That increases your Social Security income for the year by $7,320 ($610 x 12 months).
What if I'm 64?
Okay, so you are probably not currently 70 years old. What if you currently are age 64 and have not claimed your benefits yet? In that case, by delaying for the last two years, you would apply the prior two years of COLA increases of 8.7% (2023) & 5.9% (2022) to the minimum guaranteed increases of 7.14% (age 63) and 6.67% (age 64). This would increase your age 64 benefit to $1,841 compared to only the $1,600 on the chart. Comparing your $1,841 benefit at age 64 to your age 62 benefit of $1,400, you increased your benefit by 31.55% just by delaying those two years, and you locked into that increased benefit for the rest of your life.
Where can you find a better deal than that, an increase of over 31% over a two-year period? No place that I know. Even if you can’t delay up until 70. If you can for a few years past 62, your benefit is going to be so much bigger. The 6.67% to 8.33% increase for every year that you delay, plus any annual COLA increases on top of that. It really is an incredible deal!