Your Social Security statements show the benefit amounts you will receive at three different claiming ages; age 62, the earliest claiming age, your Full Retirement Age (assumed to be age 66) and age 70, the oldest claiming age.
Well it turns out the benefit amounts for age 66 and age 70 are…wrong
But, they are wrong in a good way. If you wait until those ages to claim your benefits, the amounts you actually receive will be bigger, probably substantially bigger.
They will be bigger than the amounts on your statements because of retro-active COLA (Cost-Of-Living Adjustment) credits. This is an amazing feature of Social Security that very few people are aware of and it makes the case stronger for delaying the claiming of your benefits as long as possible.
Retroactive COLA Credits
Most people believe that time machines are not real and that they only exist in fantasy books, TV shows, and movies. For most of my life, I thought this was true. However, a few years ago, to my utter amazement, I discovered that a time machine does exist, within our Social Security system!
Retroactive COLA Credits is another name for the Social Security Time Machine: they let you step back in time and take advantage of COLA increases from past years.
Delaying your benefits until age 70 will allow you to take full advantage of Retroactive COLA Credits. If you delay claiming your Social Security benefits until age 70, because of Retroactive COLA Credits, the Social Security Administration allows you to go back in time to the year when you turned age 62 and apply the COLA, from that year, to the Social Security benefit you will start to receive at age 70.
This means they will increase your Social Security check by the same COLA percentage that you would have received if you had claimed your benefits when you were age 62. They will give you retroactive COLA increases for the years during which you turned age 63, 64, 65, 66, 67, 68, and 69. Social Security will go back in time and give you the COLA percentage increases for all of those past years, even though you did not claim or start your Social Security benefits until you were age 70.
You don’t have to delay your benefits until age 70 to benefit from Retroactive COLA Credits. Any amount of time that you delay claiming your benefits after age 62 will allow you take advantage of the Social Security Time Machine of Retroactive COLA Credits.
Case Study: Casey Delays But Still Receives COLA Increases From Prior Years
The table above shows the amount of the Social Security benefits claimed at different ages. The Social Security benefit at the Full Retirement Age, age 66, is $1,500 per month. Claiming at age 62 reduces the benefit to $1,125 per month, and claiming at age 70 increases the benefit to $1,980 per month. The charts assume a 3% COLA adjustment every year.
This table shows the growth in the size of the Social Security check every year with a 3% COLA increase if benefits are claimed at age 62. It also shows how the Retroactive COLA Credits increase the size of the Social Security check when benefits are claimed at age 66 or age 70.
Under Column B, benefits were claimed at age 62. The benefits began at $1,125 per month, but every year, the size of the monthly check increased by 3%, and at age 66, the size of the monthly check grew to $1,266 per month. At age 70, their monthly check grew to $1,425 per month.
Column C, in the above table, shows what happens when Social Security benefits are claimed at age 66. Instead of receiving $1,500 per month at age 66, because of Retroactive COLA Credits, Casey’s monthly check is increased to $1,688. The Social Security Administration went back in time to the year in which Casey was 62 years old and credited her with the COLA increase for that year. They did the same thing for the years in which she was age 63, 64, and 65 years old.
They gave Casey four years of Retroactive COLA in-creases, which increased the size of her monthly check to $1,688, when she claimed her benefits at age 66. Column D, in the table shows what happens if Social Security benefits are delayed and claimed at age 70.
Claiming Social Security benefits at age 70 results in receiving eight years of Retroactive COLA Credits, which increases the size of the monthly check from $1,980 to $2,508. By delaying the claiming of Social Security until age 70, and because of Retroactive COLA Credits, the size of the Social Security check, starting at age 70, has grown to $2,508.
The table above compares the difference between the size of the original checks claimed at age 62 of $1,125, and at age 70 of $1,980. That difference starts out at $855 ($1,980 – $1,125) in Column B.
Eight years later, the check originally claimed at age 62, has grown to $1,425. The check claimed at age 70, because of eight years of Retroactive COLA Credits, has grown to $2,508. Because the difference in the size of the two checks has grown from $855 to $1,083, this will further reduce the break even age between claiming early or delaying.
There is no disadvantage to waiting and claiming benefits at a later age. You’re Social Security statements do not take into account the impact that Retro-active COLA Credits will have on your benefit amount if you delay claiming. That is why the benefit amounts for age 66 and age 70 that appear on your statement are wrong and will probably end up being much bigger.
Brian Doherty is a nationally-recognized expert on Social Security claiming strategies and a top-rated speaker and media commentator on this topic. He is the author of Getting Paid To Wait, which reveals his strategy on how to maximize Social Security benefits.