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  • Writer's pictureChris Stein, CFP®

Will I Receive the Social Security COLA If I Haven't Claimed My Benefit?

A reader from North Carolina wonders if he will receive the Social Security Cost of Living Adjustment (COLA) for last year even if he has not yet begun collecting his retirement benefit.

"I retired five years ago, and I just turned 60. I guess you would call that my gap period. I'm adding nothing new to my Social Security benefit at this time. With the large COLA increase to Social Security last season, do I benefit from that increase? Or does it only apply once my benefit has started?"

You are asking about a confusing part of Social Security that gets very little press.

The Cost of Living Adjustment (COLA) is what you're talking about. That's the one that's announced toward the end of every October. First, articles are published everywhere, guessing what the figure will be. Then, once it's announced, it's mentioned everywhere for a couple of weeks.

The COLA starts to apply the year after you turn 62. That inflation figure for the year you turn 62 is given to you starting with your calculated benefit in January of the year you turn 63 – whether you're claiming or not.

Let me emphasize that: you don't have to be receiving benefits for the COLA to be applied. When you ask, "Will it only apply after my benefits have started," it has nothing to do with "benefits starting" and everything to do with your age being 62. And you're not there yet.

As for the high COLA you heard about recently? You don't get that. That's the bad news. But the good news is that up until now, you've been getting the benefit of wage inflation adjustments instead. COLAs and wage inflation adjustments track pretty closely, but one reflects the increases in prices and the other the increases in wages.

The wage inflation figures are what Social Security uses to adjust your earnings record – a major factor in calculating your retirement benefit.

You have been getting wage inflation adjustments over the past few years. The last one was 8.89%, which is very competitive with that COLA you heard about last year. The year before that, it was 2.83%, and before that, 3.75%. While the two adjustments measure different things, they tend to move in a similar general direction.

So, don't fret too much. You will start to see those COLAs in the year you turn 63, about three years from now. However, there will be one year with no adjustments, which we've discussed occasionally. The year you turn 61, you don't get any wage inflation adjustment. Now, that's not just you; it affects everybody. For that one year, you won't get wage inflation or COLA adjustments; it's how the system works.

The only unfair part is if you're unlucky and your "missed year" is one with above-average inflation. You could argue that you would be harmed more than someone whose missed year had below-average inflation.

There's nothing you can do to control that. It's all determined by the day you were born, which leads to the day you turn 61, 62 and 63. It's just the luck of the draw: how you're affected reflects what's going on in the economy and with inflation that particular year.

To wrap up, you've been getting wage inflation adjustments to your earnings until now. Those will stop, and you'll spend a little time with no additional adjustments. Then you'll transition to earning the announced COLAs once you turn 62 – which you'll start seeing reflected in calculations in January of the year you turn 63 – whether you are already claiming or not.


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