How are COLAs and DRCs applied to my Social Security retirement benefits?

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

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How are COLAs and DRCs applied to my Social Security retirement benefits?

Hi Larry, my FRA is 66 and will be filing for Social Security retirement benefits at 70. Are the COLAs and DRCs (8%) applied together year by year for each of the four lag years, or is the COLA applied annually, then after the fourth year, the full DRC of 32% is applied to the inflation-adjusted PIA balance? Thank you, Bill

Hi Bill, Cost of Living Adjustments (COLA) are applied to a person’s Primary Amount of Insurance (PIA) and Deferred 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 begin receiving their benefits at full retirement age (FRA). The best way to explain is to use an example.

Let’s say Bob’s full retirement age is 66 and at that time his AIP is $1,800. Bob decides to wait until age 70 to claim his Social Security retirement benefits. In the four years between age 66 and age 70, COLA increases take his PIA to $2,000. When Bob claims his benefits at age 70, his CRDs would be applied to his updated MRP, which would bring his benefit rate to $2,640 (i.e. 32% higher than his new MRP).

You might want to consider using my company’s software – Maximize My Social Security or MaxiFi Planner – to make sure your household gets the highest benefits for life. Social Security calculators provided by other companies or nonprofits may provide appropriate suggestions if constructed with extreme care. Best, Larry


What advice can you give me so that social security voluntarily suspends my benefits?

Hi Larry, I desperately need some advice here because Social Security gave me the wrong information. I am 68 years old and have been receiving my benefits since December last year. Now I want to voluntarily suspend his payment because I have returned to work, and I want to earn more deferred retirement credit until age 70.

When I called SSA they told me I could only withdraw the claim once and refund what I had received so far. I know it’s not true, but how do I proceed when they say I can’t? Thank you, Jamie

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

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

Also, if you continue to have problems with Social Security, you should consider contacting the offices of your US Congressman or one of your US Senators. Best, Larry


Will my two years of zero earnings hurt me?

Hi Larry, I haven’t worked in a few months and probably won’t again. I plan to retire from Social Security at age 70. Will my lack of income for two years hurt me? Thank you, Kevin

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

Social Security retirement benefits are based on an average of the best 35 years of earnings indexed to a person’s Social Security covered wages. of your last 35 highest years of earnings-indexed earnings. Best, Larry


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