In 1975, the Social Security Administration began adding annual increases to retirement benefits to keep up with rising costs based on the rate of inflation. If there is no inflation, there is no COLA. Although the COLA has been 0% three times, it has never been negative, even in periods of deflation. The COLA, however, does not only affect current benefits. It also applies to all future benefits and even the maximum taxable earnings on which wage earners pay into the system.<\/p>\n\n\n\n
How is the COLA calculated?<\/strong><\/h2>\n\n\n\nThe timing and methods for calculating COLA have changed over time. Since 1984, the Social Security Administration has based COLA on increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers (or CPI-W), comparing the average CPI-W from the third quarter of the current year to that of the prior year.<\/p>\n\n\n\n
What is the 2023 COLA?<\/strong><\/h2>\n\n\n\nThe Social Security Administration announced<\/a> on Oct. 13 that the 2023 COLA increase will be 8.7%, the highest increase since 1981. That means payments will go up by more than $140 per month, on average, starting in January.<\/p>\n\n\n\nIf you currently receive benefits, you should receive your COLA notice via your online Social Security account<\/a> before the end of December, and you will receive your increased benefit amount in January.<\/p>\n\n\n\nIf you have not filed for benefits but are curious how the change will affect your payment, you can go to your online account<\/a> and view your full retirement age benefit amount before the end of the year. Then you can check again in January to see the increase reflected.<\/p>\n\n\n\n![\"\"](\"https:\/\/harrisonlazarus.com\/wp-content\/uploads\/2022\/11\/Social-Security-Cost-of-Living-Adjustments-Since-1975-COLA-_chart_Blog-1024x490.jpg\")
<\/figure>\n\n\n\nShould I file now so I do not miss out on the COLA?<\/strong><\/p>\n\n\n\nWhile everyone\u2019s situation is different, generally there are good reasons to delay filing for your Social Security benefits, especially if you have other income sources you can rely on. For example, filing too early might permanently reduce your benefits, it may lead to adverse tax implications, or you may be subject to an earnings test that reduces your current benefits.<\/p>\n\n\n\n
Many do not realize that Social Security is protected against inflation, one of the reasons we view Social Security as a form of longevity insurance. And in fact, even for individuals who plan to file in the future, annual COLAs are still factored into their future benefits from the year they turn 62. So, you do not lose out on this benefit by waiting to file.<\/p>\n\n\n\n
If you chose to file earlier than you would have under the assumption you might miss out on the increase, there may be options to consider. For example, you can get a one-time \u201cdo-over\u201d by filing a request to withdrawal your application<\/a> up to 12 months after filing. This will cancel your benefits so you can reapply later, but you will need to repay any benefits that you\u2019ve received. Alternatively, if you are older than full retirement age<\/a> (66 or 67, depending on your birth year), you can suspend your benefits so that they continue to grow at a rate of 8% per year up to age 70. If you suspend, however, any benefits that family members receive based on your benefit, such as a spousal benefit, will also be suspended. We would recommend consulting with your financial advisor as soon as possible to help determine the right course of action for you.<\/p>\n\n\n\nI\u2019m already receiving benefits. Will the COLA be enough for me?<\/strong><\/h2>\n\n\n\nThe short answer is it depends. Perhaps you have other financial resources and don\u2019t have to rely as heavily on Social Security for all your income needs. Also, depending on your spending habits, you may not be as affected by the rate of inflation as others. Interestingly, the CPI-W used to determine the adjustment reflects inflation for a particular subset of workers (urban wage earners and clerical workers) who are paying into Social Security, not those who are retired and actually receiving benefits.<\/p>\n\n\n\n
Each person\u2019s situation and spending habits are different, so if you have concerns it may be helpful to review your financial strategy with us to confirm.<\/p>\n\n\n\n
<\/div>\n\n\n\nFor informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. U.S. Market above is measured by Vanguard Total Stock Market Index Fund (VTSMX), High Quality Fixed Income is measured by DFA Diversified Fixed Income (DFXIX), DFA Inflation-Protected Securities (DIPSX), DFA Municipal Bond (DFMPX), and DFA Intermediate Gov\u2019t Fixed Income (DFIGX). Past performance does not guarantee future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Mentions of specific securities should not be construed as a recommendation. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this document. R-22-4451<\/em><\/p>\n\n\n\n
The Social Security Administration announced<\/a> on Oct. 13 that the 2023 COLA increase will be 8.7%, the highest increase since 1981. That means payments will go up by more than $140 per month, on average, starting in January.<\/p>\n\n\n\n If you currently receive benefits, you should receive your COLA notice via your online Social Security account<\/a> before the end of December, and you will receive your increased benefit amount in January.<\/p>\n\n\n\n If you have not filed for benefits but are curious how the change will affect your payment, you can go to your online account<\/a> and view your full retirement age benefit amount before the end of the year. Then you can check again in January to see the increase reflected.<\/p>\n\n\n\n Should I file now so I do not miss out on the COLA?<\/strong><\/p>\n\n\n\n While everyone\u2019s situation is different, generally there are good reasons to delay filing for your Social Security benefits, especially if you have other income sources you can rely on. For example, filing too early might permanently reduce your benefits, it may lead to adverse tax implications, or you may be subject to an earnings test that reduces your current benefits.<\/p>\n\n\n\n Many do not realize that Social Security is protected against inflation, one of the reasons we view Social Security as a form of longevity insurance. And in fact, even for individuals who plan to file in the future, annual COLAs are still factored into their future benefits from the year they turn 62. So, you do not lose out on this benefit by waiting to file.<\/p>\n\n\n\n If you chose to file earlier than you would have under the assumption you might miss out on the increase, there may be options to consider. For example, you can get a one-time \u201cdo-over\u201d by filing a request to withdrawal your application<\/a> up to 12 months after filing. This will cancel your benefits so you can reapply later, but you will need to repay any benefits that you\u2019ve received. Alternatively, if you are older than full retirement age<\/a> (66 or 67, depending on your birth year), you can suspend your benefits so that they continue to grow at a rate of 8% per year up to age 70. If you suspend, however, any benefits that family members receive based on your benefit, such as a spousal benefit, will also be suspended. We would recommend consulting with your financial advisor as soon as possible to help determine the right course of action for you.<\/p>\n\n\n\n The short answer is it depends. Perhaps you have other financial resources and don\u2019t have to rely as heavily on Social Security for all your income needs. Also, depending on your spending habits, you may not be as affected by the rate of inflation as others. Interestingly, the CPI-W used to determine the adjustment reflects inflation for a particular subset of workers (urban wage earners and clerical workers) who are paying into Social Security, not those who are retired and actually receiving benefits.<\/p>\n\n\n\n Each person\u2019s situation and spending habits are different, so if you have concerns it may be helpful to review your financial strategy with us to confirm.<\/p>\n\n\n\n For informational and educational purposes only and should not be construed as specific investment, accounting, legal or tax advice. Certain information is based on third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. U.S. Market above is measured by Vanguard Total Stock Market Index Fund (VTSMX), High Quality Fixed Income is measured by DFA Diversified Fixed Income (DFXIX), DFA Inflation-Protected Securities (DIPSX), DFA Municipal Bond (DFMPX), and DFA Intermediate Gov\u2019t Fixed Income (DFIGX). Past performance does not guarantee future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio nor do indices represent results of actual trading. Mentions of specific securities should not be construed as a recommendation. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this document. R-22-4451<\/em><\/p>\n\n\n\n<\/figure>\n\n\n\nI\u2019m already receiving benefits. Will the COLA be enough for me?<\/strong><\/h2>\n\n\n\n