Skip the COLA: The Social Security Boost That Matters More

Key Points

• Many Social Security retirees look forward to the annual cost-of-living adjustment.

• That adjustment does not raise purchasing power; it only helps benefits keep up with inflation.

• A bigger gain can come from waiting longer to claim benefits.

Every year, many current and future Social Security recipients eagerly await news of the Social Security cost-of-living adjustment, or COLA. In most years, that adjustment leads to a higher monthly benefit.

But while the COLA can matter to household budgets, it is not the increase most people should be watching. A far more important boost can have a much larger effect on retirement finances, and it is the one retirees should try to earn if they are able.

Why delaying benefits can have a bigger effect

The boost retirees should pay attention to is the increase that comes from waiting to file for retirement benefits. The COLA only adjusts benefits to reflect inflation. It does not create additional buying power; it simply helps retirees avoid falling behind as prices rise.

By contrast, delaying a Social Security claim permanently raises a monthly benefit for each month a person waits beyond the earliest eligibility age of 62. That increase can come from avoiding the reduction tied to claiming before full retirement age, or from delayed retirement credits earned by waiting beyond full retirement age.

Putting off a claim can do more than raise the monthly check. Research has shown that it can also improve the chance of collecting the most lifetime benefits. In some situations, waiting until age 70 can add hundreds of thousands of dollars in extra lifetime spending power.

How much can the payment grow?

The size of the increase depends on how long benefits are delayed.

For example, suppose a worker has a standard benefit of $2,000 at full retirement age. That is the primary insurance amount. If that same person claims at 62 with a full retirement age of 67, the payment would drop to $1,400 after a 30% early-filing reduction. But if the person waits until 70, the benefit would rise by 24% to $2,480 a month.

That is an increase of $1,080 each month, and the benefit at 70 would be a little more than 77% higher than the amount available at 62.

This kind of increase can have a major effect on retirement comfort. If someone is able to delay filing and does not expect to lose out on lifetime benefits by waiting, it is worth seriously considering postponing Social Security as long as possible, ideally until benefits are maximized at 70.

Even for people who have already retired, there may still be ways to raise future benefits. Those who are less than 12 months into receiving payments may be able to withdraw their claim by repaying benefits already received. And people who have reached full retirement age and can afford to do so may be able to suspend benefits and earn delayed retirement credits that increase later payments.

For anyone whose long-term finances would improve with a larger Social Security check, these options are worth a close look.