Finance

Approaching 62? What to know about Social Security’s 8.7% COLA

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Current Social Security recipients are set to receive an 8.7% increase in their benefits for 2023 starting this month, thanks to the largest cost-of-living adjustment in 40 years.

If you are at or near the Social Security retirement age of 62, you may wonder if you should claim benefits to get a COLA increase.

Experts say it’s generally best to wait.

“Don’t feel like you’re missing out if you don’t claim now,” said Joe Elsasser, founder and president of Covisum, a Social Security software company.

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Generally, if you claim Social Security benefits at age 62, your monthly checks will be reduced. Wait until full retirement age — ranging from 66 to 67, depending on when you were born — and you’ll get 100% of the benefits you’ve earned. Delay even longer – up to age 70 – and you’ll get an 8% increase for each year you delay your full retirement age.

A COLA increases what’s known as your primary insurance amount — the benefit you’re entitled to at full retirement age — every calendar year after you turn 62, according to Elsaser.

As a result, people who turn 63 this year will receive an 8.7% cost-of-living adjustment, regardless of whether they claim benefits or not, Elsasser said.

If they continue to wait, they will also receive greater benefits as early claim discounts are reduced, he said.

This year’s class for early retirees

What retirees are experiencing now can serve as a lesson for pre-retirees, Elsasser said.

For current beneficiaries, the 8.7% COLA is calculated based on their benefit amount. The longer you wait to claim, the bigger your benefit, and therefore the bigger COLA you’ll see.

Those who have previously claimed Social Security still receive the same COLA rate, but based on reduced benefit amounts.

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To make up the shortfall, they may need to tap into their retirement investment portfolios for more money, assuming they even have those assets to use. And they may have to make those withdrawals from portfolios that have fallen due to volatile markets just to keep their standard of living the same, Elsasser said.

Lesson? A bigger Social Security check certainly softens that blow,” Elsasser said.

What to do as you approach the age requirement

Even if you’re not yet on the verge of claiming benefits, you should check your Social Security statements regularly, especially to make sure your earnings are recorded correctly, said Jim Blair, vice president of Premier Social Security Consulting and a former Social Security administrator. .

“If there’s a mistake, the sooner you catch it, the easier it is to correct,” Blair said.

Even if you plan to wait to claim until full retirement age or later, it’s wise to keep track of your estimated benefit amounts, he said.

If you start doing this by your late 50s at the latest, it can help you plan for other income streams for retirement, Blair said.

One issue to keep in mind when deciding when to claim Social Security is whether your spouse will also be relying on your benefits for income. This can make a big difference to their standard of living if you die and they are forced to rely on one income.

“The longer you wait, not only will your benefit be higher, but the surviving spouse will get a bigger one,” Blair said.

There are reasons you may want to claim early, such as having a child who may be eligible for benefits based on your record.

“You have to look at your entire situation before you decide when to apply,” Blair said.

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