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  • Writer's pictureChris Stein, CFP®

COLA and DRC – When Are They Applied?

This week we received a question that is effectively a two for one since the question involves the difference in the application of COLAs (Cost of Living Adjustments) and DRCs (Delayed Retirement Credits).  As with most things related to Social Security, the details can be very confusing…

“My FRA (full retirement age) was January 2017. I decided to retire in September 2017 and received my first payment in October 2017. The payment I received was my FRA amount. This past January 2018 I received the 2018 2% COLA increase but my check was not adjusted for the 9 months I delayed my retirement. Should I contact Social Security or should I hear from them soon?”

COLA Adjustment

Let me first explain why the COLA adjustment showed up in your January payment.  Prior to 1975, Congress set COLAs with specific legislation.  Since 1975 COLA adjustments have become “automatic”, however from 1975 to 1982 COLAs were effective with SS benefits payable for June in the year they were applied.  After 1982, they adjusted the timing so that the COLA calculation is based on the change in CPI-W from the end of September from year to year.  This allows them to announce the COLA for the upcoming year in October (which they did this past October 2017) and make it effective for the December benefit, which is actually paid in January.  This is why you received the COLA adjustment in your January payment.

Delayed Retirement Credits

Delayed Retirement Credits are calculated and credited as of January 1 of each year.  Since you had not accrued any DRCs by January 1, 2017, they paid you your unadjusted FRA benefit for 2017 when you applied for benefits in September.  This January 1, 2018 they look again at your record and determine that since you filed 8 months (not 9 months as you mention in your question) after your FRA month they will now apply the DRCs you have accrued.  However these credits take effect for your January benefit which is payable in February.  I hope that by the time you read this you will have received your February payment (of January benefits) and will have seen the increase in your benefits (about 5.33%)

If you do not see the increase in your February payment, you should contact the Social Security Administration to find out what happened and when they will fix the issue.

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