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Understanding Social Security

June 28, 2022, 7:08 a.m. EDT

Are Social Security COLAs applied if I delay benefits?–and other claiming concerns

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By Jim Blankenship

We have received some interesting reader questions recently. The first concerns whether cost of living adjustments, or COLAs, are applied while delaying the filing of application for Social Security benefits:

I am 68 and receiving survivor benefits from my deceased husband. I am waiting until age 70 to take my own benefits. My question is will I receive the 5.9% COLA from last year, plus whatever the COLA will be for 2023, plus the 32% for waiting until age 70? If not, doesn’t it make sense to start receiving benefits before the end of this year since the estimated COLA for 2023 is 8.9%?

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First of all, the survivor benefit that you’re currently receiving will be increased by whatever the COLA is for 2023.

In addition, your retirement benefit will have the COLA factored into it once you apply for it, even if you wait until age 70 to apply. The COLA is applied to every year after your age 62 benefit calculation was made.

So you won’t be missing out on the 2023 COLA by delaying past the date that the COLA is applied. Filing before the end of the year will only result in missing out on the 8% annual delay factor (⅔ of 1% a month) for the remaining time until you reach age 70.

The second question is about a situation where the individual is under full retirement age (FRA) and is earning more than the annual earnings limit, such that a portion of her survivor benefit is being withheld.

I filed for my husband’s benefits at age 62. $11,795 will be withheld from January to July.

Question1: Will this amount be replaced later?

Question 2: If I reduce my income, will Social Security redo the amount and the time to release the funds? If the amount is $19,500, what is the total I need to make to avoid a recalculation of the benefit amount and does that include other income sources (401(k), investments)?

Answering your numbered questions first:

Question 1:  First of all, I’m making the assumption that by “husband’s benefits” you’re referring to a survivor benefit, rather than a spousal benefit (because the calculations will be different if it’s a spousal benefit). This is primarily because the amounts you reference seem more in line with a survivor benefit than a spousal benefit.

Once you reach Full Retirement Age (FRA), you will get credit for the months of withheld benefits. So, if your benefits are withheld for seven months each year between your age 62 and 66 (67 being your FRA year, there’s a more liberal earnings limit), this means up to 35 months could be added to your record.

Your survivor benefit will be recalculated as if you actually applied for benefits at the age of 64 years and 11 months (35 months later than age 62), which would have the effect of increasing your benefit by around 14.9%. You’ll then receive this increased benefit amount for the rest of your life, or until some other factor changes (such as a subsequent marriage/death of a spouse or ex-spouse).

Note: The calculation of the potential increase makes several assumptions that weren’t clarified in the original message, so your results may vary, don’t take that figure as gospel.

Question 2:  Reducing your income in this year will not result in a recalculation for this year’s benefits being withheld. However, beginning next year (assuming that you reduced your income below the threshold this year) your benefits would no longer be withheld. If you reduce your income to any amount below the current level (which I estimate from your message to be approximately $43,150), then potentially a smaller amount of withheld benefits (fewer months) would result for the following year. In addition, the earnings limit will have increased next year as well.

Lastly, I believe I’ve answered the final (unnumbered) question partially in the answer to Question 2. The remaining piece to be answered is whether income from sources such as 401(k) or investments is factored into the earnings limit. This is the good news:  only earnings from employment (or self-employment) are counted toward the annual earnings test . Employment earnings are counted even if those earnings are not subject to Social Security taxation. However, retirement income, such as 401(k) withdrawals, and investment income, savings interest and other non-employment income are not counted.

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