About to claim Social Security? Choose wisely

Question: Michael from Harrison: I was told that if I claim Social Security early that my benefit will eventually still increase. Is this true?

A: There are two ways we can read this question. The first is in regard to your full benefit amount that’s tied to your Full Retirement Age (FRA): If you claim before your FRA (which is now between age 66 and 67 for most people), your benefit will be permanently reduced for life. It will not increase once you eventually reach your FRA.

For example, let’s say at your FRA of 67 you’re entitled to a "full" benefit of $1,500 a month. If you would start claiming at the earliest age possible (in most cases) of 62, you would actually only receive 70% of that full benefit, or $1,050 a month. And this monthly amount would not increase to $1,500 once you reach age 67. 

The second way we could interpret this question is in regard to the annual cost of living adjustment (COLA). If this is to what you’re referring, then yes, even if you claim early, your benefit amount will still increase if a COLA is announced – but the amount is usually nominal. For instance, all beneficiaries received a 1.6 % increase in 2020 (so the $1,050 monthly benefit in the above example would have increased to about $1,067 a month). But a COLA isn’t guaranteed: There was no COLA in 2010, 2011 or 2016. (The Social Security Administration typically makes its COLA announcement in October, so we should know the plan for 2021 soon.)

Here is the Simply Money Point. Deciding when to take Social Security is one of the most important retirement decisions you will make. Please make sure you truly understand all the rules before setting anything in stone. If you need help, consider reaching out to a fiduciary financial adviser.