Personal finance

Approaching age 62? What you need to know about Social Security’s 8.7% cost-of-living adjustment and claiming benefits

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Current Social Security beneficiaries are poised to receive an 8.7% boost to their benefits for 2023 starting this month, thanks to the highest cost-of-living adjustment in 40 years.

If you’re at or near Social Security’s retirement benefit eligibility age of 62, you may wonder if you should claim benefits to get in on the COLA increase.

Experts say it’s generally still best to wait.

“Don’t feel like you’re going to miss it if you don’t claim now,” said Joe Elsasser, founder and president of Covisum, a Social Security-claiming software company.

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Generally, if you claim Social Security retirement 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 will receive 100% of the benefits you earned. Put off claiming even longer — up to age 70 — and you will get up to an 8% boost for every year you delay passed full retirement age.

The COLA increases what is known as your primary insurance amount — the benefit due to you at your full retirement age — every calendar year after you turn 62, according to Elsasser.

As a result, people who are 63 this year will get the 8.7% cost-of-living adjustment, whether they have claimed their benefits or not, Elsasser said.

If they continue to wait, they also stand to receive higher benefits as the discounts for early claiming get reduced, he said.

This year’s lesson for pre-retirees

What retirees are experiencing now can also 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 waited to claim, the bigger your benefit and, therefore, the bigger COLA you will see.

Those who claimed Social Security early still get the same COLA rate, but based on reduced benefit amounts.

To make up for the shortfall, they may have to tap their retirement investment portfolios for more money, provided they even have those assets to draw on. And they may have to make those withdrawals from portfolios that are down due to rocky markets just to keep their standard of living the same, Elsasser said.

The lesson? “A larger Social Security check certainly softens that blow,” Elsasser said.

What to do as you approach claiming age

Even if you are not yet on the brink of claiming benefits, you should be regularly checking your Social Security statements, particularly to make sure your earnings are correctly recorded, 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 fix,” Blair said.

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

Starting to do so no later than your late 50s may help you plan for other streams of retirement income, Blair said.

One question to keep in mind when deciding when to claim Social Security is whether your spouse will also rely on your benefits for income. This may 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 the higher your benefit’s going to be, but the higher the surviving spouse will receive,” Blair said.

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

“You need to look at all of your overall situation before you decide when to apply,” Blair said.

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