COLAs (Cost of Living Adjustments) increase our benefit amount in relation to the rate of inflation. Currently, we’re seeing projections for a COLA increase of 8.7 percent. It’s the largest increase in decades and amounts to about an extra $150 a month of the average benefit. But what about deferred benefits?
Deferred benefits are benefits that are purposefully paused so that they can grow in value until their beneficiary reaches their full retirement age. Seniors are faced with a tough decision; can they afford to delay their benefits when the COLA is this big? Luckily, the experts at The Motley Fool can provide some much-needed insight.
Deferred Benefit Credits Add Up
Seniors, once they reach full retirement age, become eligible for their Primary Insurance Amount (PIA) from the Social Security Administration (SSA). Your PIA is the initial benefit amount you’d receive each month and is based on 35 of your highest earning years. Deferred benefits that aren’t claimed until the age of 70 can be valued at 30 percent higher than your PIA. But the question becomes, do those that wait to claim leave money on the table by missing out on COLA increases?
Fortunately, the answer is no. For every year that seniors can hold off on claiming their benefits they receive a retirement credit until age 70. That credit adds value to their benefit, but their PIA is still affected by the COLA increase. So that credit will be added to a higher initial amount than if they had claimed before the COLA increase.
Deciding When to Claim
The decision on what time is right to claim is a personal choice that no one other than you as an individual or you as a couple can make. Married or divorced seniors are eligible for spousal benefits, where the lower earning spousal can earn a benefit equal to half of the higher earner. If that higher earning spouse opts for deferred benefits, then both seniors will be eligible for a higher benefit down the line.
COLA increases make it a little easier for those who claim early. It becomes a trade-off that every senior must plan around. If you claim early, you have more time with your benefits; if you claim later, you have less time but a bigger benefit. Decide what works best for you, your family, and your retirement plan.
For more tips and tricks on retirement, follow along with the Council for Retirement Security.