How Are COLAs And DRCs Applied To My Social Security Retirement Benefit?

Today’s Social Security column addresses questions about how retirement benefits accrue both cost of living adjustments and delayed retirement credits, the ability to suspend a retirement benefit and potential effects of having no income before filing. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

See more Ask Larry answers here.

Have Social Security questions of your own you’d like answered? Ask Larry about Social Security here.

­How Are COLAs And DRCs Applied To My Social Security Retirement Benefit?

Hi Larry, My FRA is 66. and will file for my Social Security retirement benefit at 70. Are the COLAs and DRCs (8%) applied together year-by-year during each of the four delayed years, or is only the COLA applied each year and then after the fourth year the full 32% DRC is applied to the inflation-adjusted PIA balance? Thanks, Bill

Hi Bill, Cost of living adjustments (COLAs) are applied to a person’s primary insurance amount (PIA), and delayed retirement credits (DRC) are applied to the person’s current PIA. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at full retirement age (FRA). The best way to explain is by using an example.

Let’s say Bob’s full retirement age is 66 and at that time his PIA is $1,800. Bob decides to wait until age 70 to claim his Social Security retirement benefits. Over the four years from when Bob is 66 to when he turns 70, COLA increases raise his PIA to $2,000. When Bob claims his benefits at 70, his DRCs would be applied to his updated PIA, raising his benefit rate to $2,640 (i.e. 32% higher than his new PIA).

You may want to consider using my company’s software — Maximize My Social Security or MaxiFi Planner — to ensure your household receives the highest lifetime benefits. Social Security calculators provided by other companies or non-profits may provide proper suggestions if they were built with extreme care. Best, Larry

What Advice Can You Give Me To Get Social Security To Voluntarily Suspend My Benefits?

Hi Larry, I desperately need some advice here because Social Security gave me the wrong information. I am 68, and receiving my benefit since December, last year. Now I would like to voluntarily suspend receiving it because I went back to work, and I want to earn more delayed retirement credit until 70.

When I called SSA, they said I can only withdrawal the application once, and repay what I received so far. I know this is not true but how can I proceed when they say I can’t? Thanks, Jamie

Hi Jamie, You’re correct that you’re allowed to voluntarily suspend your benefits in order to earn delayed retirement credits (DRCs). You are supposed to be able to request voluntary suspension either verbally or in writing, but I would definitely recommend the latter since you’ve already apparently been misinformed by someone at Social Security.

The earliest month that you can suspend your benefits is the month after the month of your request. So if you submit a request in February 2022 for example, March 2022 is the first month that your benefits can be suspended. I would suggest submitting your request on a form SSA-795 to your nearest Social Security office, which you can locate using Social Security’s website. You might also want to submit your request via certified mail.

Also, if you continue to have problems dealing with Social Security you should consider contacting the offices of either your US congressional representative or one of your US senators. Best, Larry

Will My Two Years Of Zero Earnings Hurt Me?

Hi Larry, I haven’t been working haven’t since for a few months and probably won’t again. I’m planing on taking my Social Security retirement benefit at 70. Will my lack of income for two years hurt me? Thanks, Kevin

Hi Kevin, Not necessarily. Your eventual benefit rate might have been higher had you worked and had high earnings during the years you were laid off, but your benefit rate won’t go down because of them.

Social Security retirement benefits are based on an average of a person’s highest 35 years of Social Security covered wage-indexed earnings, so the years you were laid off would only have increased your benefit rate if you earned more in those years than you did in one of your previous 35 highest years of wage indexed earnings. Best, Larry