Will Delaying Social Security to 2024 Cause You to Miss the 3.2% COLA?
The Social Security Administration announced that it would be increasing benefits by 3.2% in 2024. The 3.2% COLA for 2024 is significantly lower than the 8.7% COLA beneficiaries received in 2023. This is because inflation has moderated over the past year.
What is the Cost-Of-Living Adjustment (COLA)?
The purpose of the COLA is to ensure that the purchasing power of Social Security is not eroded by inflation. It is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a COLA was determined to the third quarter of the current year. If there is no increase, there can be no COLA.
History of the COLA
Will Delaying Social Security Cause You to Miss the 3.2% COLA?
Recently, we received a lot of questions on whether it makes sense to take Social Security in November or December of 2023 to avoid missing the 3.2% COLA in 2024. The short answer is no. You will not miss out on the COLA if you are eligible to begin benefits. COLAs are added to your primary insurance amount (PIA) even if you haven’t started benefits.
Example:
You are age 62 and want to delay until 63. Your full retirement age (FRA) is 67 and your primary insurance amount (PIA) is $3,000 at 67. Will you receive the COLA if though you are not taking Social Security at age 62? Yes, you will receive the COLA as you can see below.
- Age 67 PIA = $3,000
- COLA = 3.2%
- COLA adjusted PIA at age 67 = $3,096
- Age 63 = $2,322
- $3,096 x 25% reduction (for taking 4 years early from age 67)
The 25% reduction is due to taking Social Security before your full retirement age, however you can see the benefit was increased due to the COLA. If you decide to delay Social Security in 2024, your PIA amount would still receive the 3.2% COLA, increasing the PIA amount up to $3,096.
So if you decided to take Social Security at age 63, then the amount would be reduced by the increased PIA amount of $3,096.
What if you are past your full retirement age?
COLAs can supercharge your benefits if you delay past full retirement age. Not only will you receive the COLA increase on your PIA, but you will also receive an additional 8% increase for each year you wait until age 70.
For example, you wait one year past your FRA and start benefits at age 68.
- Age 67 PIA = $3,000
- COLA = 3.2%
- COLA adjusted PIA at age 67 = $3,096
- Age 68 = $3,344
- $3,096 x 8% increase (for delaying 1 year past age 67)
When should you start Social Security?
The decision of when to start Social Security should NOT be based on recent COLA information, no matter how high the COLA is. If you are eligible for Social Security, you will receive the COLA adjustment through your PIA if you have delayed taking Social Security.
There is not a correct answer for everyone on when to take Social Security. There are several factors such as: your health, family longevity, other sources of fixed income, and personal financial situation that must be taken into consideration when determining when to take Social Security for you.
For more information on Social Security strategy check out The Social Security Myth – Should You Take Right Away or Delay?
Reach Out to Us!
If you have additional federal benefit questions, reach out to our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we focus on retirement planning for federal employees. Learn more about our process designed for the career federal employee.
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