ABOUT INCLUDING “COLA” IN BENEFIT PROJECTIONS

In your reply to an earlier about when to claim Social Security benefits, I noticed that you did not take into account any compounded annual increases in benefit payments. While these are not guaranteed and are dependent upon the economy, they do affect the difference in total amount that can be drawn between eligibility age, full retirement age, or age 70.

Thanks for your feedback on that article. You are correct, of course, that I did not include Cost of Living Adjustments in my response to the question asked, and that was intentional. I seldom include future COLA in these calculations because doing so would mean introducing a speculative factor, and I don’t like uncertainties when it comes to claiming Social Security. It’s not that I can’t include COLA, but it’s usually easier for people to grasp the straight (guaranteed) mathematical computation without adding a variable factor which could result in an inaccurate future benefit projection.

Historically, COLA increases have ranged from 0% to 14% because COLA is tied to inflation--a variable determined by annual changes to the national Consumer Price Index.

If you remember the very high inflation years of the late 70s and very early 80s, those are the years when the highest COLA increases were granted. More recently (but before 2021) inflation has been held to its lowest level in recent history and, accordingly, COLA increases have been quite small. No COLA increases at all were granted in 2009, 2010 and 2015, and the increase in 2016 was a paltry 0.3%.

The average COLA increase over the last 10 years (2011 to 2020) was 1.7%, and the average over the last 20 years has been 2.2%. I’ve done these computations both ways--including a 2% average COLA increase and not including any COLA increase--and the resulting breakeven point for claiming at age 70 vs. full retirement age doesn’t significantly change.

For clarity, most early projections now suggest that high inflation in 2021 will cause the 2022 COLA increase to exceed 6%, far above the average over the past 20 years, further emphasizing the speculative nature of predicting COLA. Although the actual future benefit predictions would be somewhat different with a COLA projection added, those amounts would be conjecture (and “not guaranteed,” as you have said).

Excluding COLA from such analyses, however, does provide guaranteed amounts and I prefer to use solid numbers rather than speculative ones. If it turns out that COLA improves their benefit amount and break-even age that will be icing on the cake, but they’ve made their claiming decision based on solid information and guaranteed future benefit increases.

Other feedback from that same article suggested I should have also evaluated an option to claim benefits early and invest them, rather than waiting longer to get a guaranteed higher Social Security benefit. Just like trying to predict COLA, predicting investment growth introduces a variable that I’m not comfortable using when advising about Social Security benefits. For that type of speculative advice, it would be prudent to seek counsel from a certified financial planner.

IS IT ALWAYS BEST TO WAIT UNTIL AGE 70 TO CLAIM SOCIAL SECURITY?

I’m 66 years old and still (self) employed as a home builder. I have not taken Social Security benefits yet, and don’t need to at this time. If relevant, my business struggled when I first started it five years ago, but did well last year, and I’ll have my highest earning year in my life this year and possibly next year as well. My question is, and it may be dumb, is it always best to delay Social Security until age 70 if there is no current financial need for it? Also, are benefits calculated by total dollars earned over a lifetime, or is some kind of average or mean computation used? I’ve enjoyed excellent health throughout my life, and I have longevity in my family. I’m single if that’s relevant.

There is never a dumb question about Social Security, because it’s a highly complex program. No, it isn’t always best to delay claiming until age 70, but yours might be a typical example of why waiting until age 70 to claim is a very smart move.

• Your benefit at age 70 will be about 31% more than it would be at your full retirement age, which is 66 years and two months if you were born in 1955.

• If you are still working and don’t urgently need the money, your benefit will grow by 8% for each full year you delay claiming (but you can still claim at any time if necessary and get all Delayed Retirement Credits earned to the point you claim).

• Your benefit amount will be computed using the monthly average of your lifetime 35 highest earning years, so if your current and more recent earnings are among your highest, they will be included in your benefit computation when you claim. Your earnings in the early years will be adjusted for inflation, and if you don’t have a full 35 years of earnings, they will still use 35 (putting zeros in to make 35). So, if you don’t have a full 35 years of lifetime earnings, your current earnings now will eliminate some of those “zero earnings” years, resulting in a higher benefit.

• If you’re in good health now and you enjoy at least an “average” longevity (about 84 for a man your age), you’ll get more in cumulative lifetime benefits by waiting until age 70 to claim and enjoy that higher monthly benefit for the rest of your life. If you wish to estimate your life expectancy, you can use this tool we use here at The AMAC Foundation: https://socialsecurityreport.org/tools/life-expectancy-calculator/.

• Since you’re single, you don’t need to worry about maximizing a survivor benefit for your spouse, but if you marry or have an ex-spouse who outlives you, then waiting until age 70 to claim would give them the maximum survivor benefit they are entitled to.

So, in your specific circumstance, waiting until you are 70 to claim appears to be a wise choice. For others who don’t enjoy good health and don’t expect to make average longevity, or for those who urgently need the money earlier, claiming before age 70 is often a better choice.

This article is intended for information purposes only and does not represent legal or financial guidance. It presents the opinions and interpretations of the AMAC Foundation’s staff, trained and accredited by the National Social Security Association. NSSA and the AMAC Foundation and its staff are not affiliated with or endorsed by the Social Security Administration or any other governmental entity. To submit a question, visit amac foundation.org/programs/social-security-advisory) or email us at ssadvisor@amacfoundation.org.