Should You Sign Up for Social Security Before the 2023 COLA Kicks In?

(Kailey Hagen)

The average Social Security benefit is set to jump to about $147 next year, thanks to a historic cost-of-living adjustment (COLA) of 8.7%. That’s good news for seniors already claiming benefits, but it raises a question for those who are eligible but haven’t signed up yet: Should they claim before the end of the year so they can enjoy big benefits? in 2023?

The answer depends a lot on your situation. Here’s what you need to know to make the right call.

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How the government applies the COLA to Social Security benefits

When you apply for Social Security for the first time, the government calculates your initial insurance premium (PIA). It does this by looking at your average monthly income over the 35 years of your highest earnings, adjusted for inflation. This is known as average monthly income (AIME).

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The government takes your AIME and puts it into the benefit formula in effect at age 62. For those born in 1960, the benefit formula is as follows:

  1. Increase your first $1,024 in AIME by 90%.
  2. Increase all amounts between $1,024 and $6,172 by 32%.
  3. Increase 15% on all amounts over $6,172.
  4. Enter the results from steps 1 through 3 above and round down to the nearest $0.10.
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The formula for other years is the same. The only thing that changes is the breakpoint — $1,024 and $6,172 in the example above. The Social Security Administration maintains a list of tipping points for all previous years.

The result of this formula tells you how much you will earn at your full retirement age (FRA). This is around 66 to 67 for the current workforce, depending on your year of birth. That’s why the government added an 8.7% COLA for 2023, and it happens regardless of when you claim. Whether you sign up in 2022 or wait until 2023 or beyond, you won’t miss out on that benefit increase.

When you sign up, it’s still important

Enrolling in 2022 may be a smart choice for some, but it has more to do with the FRA and individual circumstances than the 8.7% COLA. If you follow the steps above, you will know what kind of benefits you can expect from your FRA. But if you choose not to enroll that year, there is an additional step in calculating your benefits.

Claims under your FRA reduce your benefits by the following amounts:

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  • 5/9 at 1% per month for up to 36 months
  • 5/12 of 1% per month for additional months if requested more than 36 months in advance

For those who enroll immediately at 62, this means a 25% discount if your FRA is 66 or a 30% discount if your FRA is 67.

On the other hand, you can delay benefits beyond your FRA and they will increase by two-thirds of 1% each month until you reach your maximum benefit at 70. This gives you an additional 24% per month if your FRA is 67, or 32% if your FRA is 66.

The best claim age usually depends on your life expectancy and financial situation. Claiming early often makes sense if you are seriously ill or struggling to pay your bills without Social Security. But for those who live into their 80s or older, enrolling early can mean settling for fewer benefits for the rest of their lives. Delaying benefits may give you more money overall, but you need to be comfortable paying all of your expenses yourself until you’re ready to enroll.

Here’s what you should focus on when deciding whether to sign up for Social Security before 2023. Either way, you’ll get the COLA, but the choices you make can have a big impact on your retirement savings. your milk

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If you need help figuring out your estimated benefits for different starting years, create my Social Security account. There is a calculator that can estimate your monthly benefit between 62 and 70. Weigh all your options before deciding how to proceed. It shouldn’t take long, and even if you decide to claim before 2023, you’ll still have plenty of time to do so.

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