Cost of Living Adjustments Don’t Pack the Same Punch if You Claim Social Security Early

Cost of living adjustments (COLAs) are periodic raises Social Security beneficiaries receive. These COLAs are vital to the financial security of retirees, many of whom depend on Social Security as a major source of retirement income. Without the adjustments, the value of benefits would fall rapidly due to inflation. 

Unfortunately, if you’ve claimed your Social Security benefits early, COLAs will be smaller in terms of the added dollar amount you get each year. Here’s why. 

Older man grabbing piggy bank away from outstretched arms.

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How claiming Social Security benefits early can affect your cost of living adjustments

When you claim Social Security benefits early, you shrink the size of your monthly checks — sometimes by as much as 30%. This means all of your future COLAs will be smaller too, thanks to the way cost of living adjustments work. See, seniors don’t get a flat dollar amount raise under the COLA rules, but rather see an increase equaling a percentage of their benefits. 

In 2021, for example, retirees will get a 1.3% COLA adjustment. If your starting benefit is smaller because you claimed it early, you’re getting an added percentage of a smaller starting number, so your income will go up by less money each year. Say, for example, your standard benefit at a full retirement age of 66 would’ve been $1,500 but you claimed benefits at 62 instead of 66. You’d see your benefits shrink by 25%, so your monthly check would be just $1,125. If you get a 1.3% COLA on a monthly benefit of $1,125, you’d get just $14.63 extra per month compared to a raise of $19.50 if you were getting a $1,500 monthly benefit instead.

That extra $4.87 may not seem like much, but it adds up to almost $60 per year. And since COLAs are always percentage-based, this same process will happen every year when there’s a Social Security raise. Of course, your percentage-based increase will be the same as any other retiree. But that may not take the sting out of the fact that such a small amount of money is added to your check — especially since you’ll generally be hit with the same Medicare premium increase as most other retirees. Medicare premiums are taken out of your checks, so there’s a greater chance most or all of your added money from your COLA could disappear to pay the premiums if your raise is a small one.  

Lower COLAs are one big reason why you’ll never catch up, in terms of your monthly income, to what the size of your checks would’ve been had you claimed benefits later. This doesn’t necessarily mean you’ll get less lifetime income — that depends on how long you live. But it does mean you’ll spend the rest of your retirement years with a lower Social Security check. And this can be a big problem if you’re relying on that money to make ends meet. 

If you don’t want a lower check or a smaller annual raise in terms of the extra dollars you receive, seriously consider delaying the start of your benefits as long as possible up until age 70 (when there’s no further benefit to waiting). And if you’re already retired and claimed your benefits early, you’ll just need to budget for the fact you’ll likely get only a few dollars extra per month in Social Security each year. 

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