Does the Social Security COLA Help If You’re Not Receiving Benefits?

The Social Security cost-of-living adjustment (COLA) for 2023 was 8.7%, the largest benefit increase since 1981. Obviously, the COLA helps current beneficiaries, but you may wonder whether it will make a difference if you’re not yet receiving retirement benefits.



The answer depends on your age. If you reached age 62 by December 2022, the 2023 COLA will increase your retirement benefit regardless of whether or not you have begun receiving it. If you were under 62 in 2022, the COLA will not directly apply to you, but high inflation may increase your future benefit due to an increase in wages on a national level and/or an increase in your own wages. Here are some details.

Primary Insurance Amount

When you reach age 62, the Social Security Administration (SSA) calculates your primary insurance amount (PIA) — the amount you would receive at full retirement age. Your benefit is always based on your PIA, although it may be reduced or increased due to claiming earlier or later than your full retirement age. Any COLA is applied to your PIA. The 2023 COLA was applied in December 2022 for benefits beginning January 2023, so you must have reached age 62 by December 2022 to receive the COLA.*

Indexing Wages for Inflation

Even if the 2023 COLA does not apply to you, your future benefit may be increased due to higher average wages in the current inflationary environment. Your PIA is based on the average of your 35 highest years of earnings, adjusted for inflation using the national average wage index (AWI) — calculated each year based on national wages. There is a look-back period of two years, so for someone who turns 62 in 2023, the PIA is calculated using the AWI for 2021. The 2021 AWI would be applied to wages prior to that year, and wages in 2021 and later would not be indexed.

The effect of the AWI may surprise you. To use a simple example, let’s say Jim reaches age 62 in 2023 and earned $100,000 in 2021 and $35,000 in 1991. After adjusting for the wage index, Jim’s 1991 earnings would be $97,202 — almost as much as his 2021 earnings. With wages rising due to high inflation in 2022, the 2022 AWI may substantially increase average wages for people who turn 62 in 2024 or later.


KEEPING UP WITH INFLATION


Social Security COLA, 1975–2023

The highest Social Security COLA was 14.3% in 1980, followed by an 11.2% COLA in 1981. The next highest was an 8.7% COLA in 2023.

There was no COLA in 2010, 2011, and 2016.
Source: Social Security Administration, 2022


Although earnings after age 59 are not indexed, they can increase your future benefits if your annual earnings are higher than one of your previous 35 highest years of earnings. In this case, the SSA will recalculate your PIA.

You can obtain an estimate of your future Social Security retirement benefit at various retirement ages by establishing a my Social Security account at ssa.gov/myaccount.

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