Cost-Of-Living Adjustment and PIAs

A reader wonders about cost-of-living adjustments (COLAs) to his Primary Insurance Amount (PIA) and his Social Security benefit.

“With the current inflation rate, I was wondering about the Primary Insurance Amount (PIA), that is, my retirement benefit at my Full Retirement Age (FRA). Will it grow with inflation (as annual COLAs) while I delay from my FRA at age 67 to claiming at 70? I know it will be increasing 8% per year non-compounded over those three years to end up with 24% more than my PIA. But will my PIA itself increase with compounded inflation over those three years?”

You raise a very frequent question, particularly among people who choose to delay when they claim their Social Security retirement benefits.

You are talking about delaying beyond your Full Retirement Age (FRA) of 67. But there’s also a concept of a delay from the first day you could claim (which would be when you turn 62). So the fact you are not taking benefits between age 62 and 67 is a form of delay, if you will. Now, claiming before FRA is usually referred to as “claiming early,” but it’s still a delay of some kind.

Whatever you call it, you’re eligible to receive retirement benefits at age 62, and you’re not collecting them. Meanwhile, other people who are collecting are receiving cost-of-living adjustments (COLAs). So, will those who haven’t claimed yet receive COLAs? The answer is a simple “yes.”

Now, you refer to the Primary Insurance Amount (PIA). Depending on your interpretation of how Social Security writes the rules, you could consider that the PIA itself is being inflated. I like to think of the PIA as a fixed value, which Social Security uses to determine your benefits by applying inflation adjustments and delayed retirement credits to your official PIA. But you could also interpret it as the actual PIA increasing.

(I think Social Security was sloppy in writing it. Even the official Social Security Handbook description is slightly confusing, because the wording is not precise, in my opinion.)

But, again, the simple answer is “yes.” You’re going to get the benefit of the inflation adjustments even while you’re delaying. So, for someone like you who is delaying past your FRA, you will get those 8%-per-year delayed retirement credits all the way up to age 70. And simultaneously, you’ll be credited with cost-of-living adjustments.

So you won’t miss out on the cost-of-living adjustment because you haven’t claimed. That would be unfair, in my opinion, and it would give people a false incentive to claim earlier than they otherwise would.

In short, you don’t have to receive your benefit to get the cost-of-living adjustments ultimately. Once you turn on your benefit, Social Security will make up for all the missed adjustments.