Did I Miss Social Security’s 5.9% 2022 COLA?

Today’s Social Security column addresses questions about whether people who hadn’t filed yet missed the January 2022 5.9% COLA, spousal benefit rat4es after early retirement benefits and switching to retirement benefits after early survivor’s benefits. 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.

Did I Miss Social Security’s 5.9% 2022 COLA?

Hi Larry, my FRA was last November but I haven’t filed yet because I want to increase my benefit by waiting at least into the middle of this year. But I’ve heard and read that since I wasn’t collecting in January of this year, I missed out on the 5.9% COLA. Is this true? Thanks, Ben

Hi Ben, You don’t need to start drawing your benefits to receive credit for the cost of living (COLA) increase that was applied this January. Your Social Security retirement benefit rate is credited with all Social Security COLAs that occurred after your turn 62 no matter when you apply for your benefits.

Social Security calculates your base primary insurance amount (PIA) in the year you reach age 62. That PIA is then updated each year to include COLAs, and those COLAs are compounded. A person’s PIA is equal to their Social Security retirement benefit rate if they start drawing their benefits at full retirement age (FRA)

For example, say Bob turns 62 in 2022 and his base PIA is calculated at that time to be $1000. Then we’ll say that in the following 5 years Social Security COLA’s are 5% each year, In that case, by the time that Bob reaches his full retirement age (FRA) of 67, Bob’s PIA would have risen to roughly $1217.10 after rounding (i.e. $1000 x 1.05 x1.05 x 1.05 x 1.05 x 1.05).

Bob would also be credited with all COLAs occurring after he reaches FRA, and he could further increase his PIA by working and replacing one or more of the years being used in his PIA computation with a higher year of earnings. And Bob could also earn delayed retirement credits (DRC) by waiting up until 70 to start collecting his benefits.

Your best filing strategy depends on many different factors, so 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

Will My Wife Get Half Of My Benefit If She Takes Her Own Benefits At 62 And Later Switches To Spousal Benefits?

Hi Larry, My wife’s expected Social Security retirement benefit is less than half of mine. If she claims her benefit at 62, and then switches to her spousal benefit at 67 when I claim my retirement benefit, will her spousal benefit be half of my benefit or will it be reduced from that level because she started at 62.? Thanks, David

Hi David, Your wife can’t actually switch from drawing her own retirement benefits to drawing just spousal benefits. Once a person files for their own Social Security retirement benefits, those benefits continue for the rest of their life. If they later become eligible for a higher spousal or survivor benefit they can apply for an excess spousal or survivor benefit, but they can’t simply switch to the other benefit.

So if she files for her retirement benefit at 62, she’ll receive a reduced rate in return for starting her benefits early. Once you file for your retirement benefit, she’ll be eligible to file for an excess spousal benefit, which together with her reduced retirement benefit rate will add up to her total reduced spousal benefit.

Her unreduced spousal benefit would be 50% of your PIA, which is what you’d get at your full retirement age (FRA). If she waits until her FRA, her excess spousal benefit will not be reduced but if she takes spousal benefits before FRA, the excess spousal benefit will be reduced too. Her unreduced excess spousal benefit is 50% of your PIA minus 100% of her PIA. Best, Larry

Will I Be Able To Switch To My Own Benefit When I Become Eligible?

Hi Larry, I just started getting my widow’s benefit at 61. My benefits retirement at 62 will be larger than my widow’s benefit. Will I be able to switch over to my retirement when I become eligible? Thanks, Betty

Hi Betty, Yes you could, but you probably shouldn’t. The only way that it might make sense for you to switch to your own benefits at 62 is if you have severe health problems that will substantially shorten your life span. If you switch to drawing your own benefits at 62, you’ll be stuck with a substantially reduced monthly benefit rate for the rest of your life.

What you should strongly consider doing instead is to continue drawing just your widow’s benefits until you reach 70, and then switch to your own retirement benefit. Your retirement benefit rate will continue growing each month after your full retirement age (FRA) until you reach 70 as long as you haven’t claimed it yet. Best, Larry