If I File For Benefits At Age 62, Will Social Security Use Assumed COLA's To Determine My FRA Rate?

Apr 8 2018 - 12:29pm

I am almost 62 years old. I plan to take social security benefits when i am age 62, I understand that the amount will be a reduced benefit based on my Full Retirement Age (FRA) amount at age 67. So looking at my current social security statement estimate if I take it at FRA 67, from what I have read, this amount does NOT include any future unknown COLA adjustments from now to that age (62 to 67). When i actually file for benefits, do they increase that FRA amount on an assumed COLA for those 5 years, so the benefit at age 62 is actually going to be higher than what is currently listed on the statement?

Hi,

No. Social Security never uses assumed future cost of living adjustments (COLA) when calculating benefit rates. I don't know if the following explanation will answer your question, but here goes.

The earnings on which your retirement benefit rate is calculated are adjusted (indexed) based on the relationship between average annual wages in the year that you turned age 60 and the average annual wages in each of the previous years in which you had earnings. Your earnings are not indexed starting with the year in which you reach age 60. Your retirement benefit rate is then calculated based on an average of your highest 35 years of indexed and non-indexed earnings (https://www.ssa.gov/pubs/EN-05-10070.pdf).

Starting with the year in which you reach age 62, your retirement rate is credited with any subsequent COLA increases as calculated using Social Security's formula (https://www.ssa.gov/oact/cola/latestCOLA.html). Such COLA increases are added to your benefit rate regardless of whether or not you start receiving benefits at age 62.

Since the data needed to calculate the average annual wages in the year that a person turns age 60 is not available until shortly prior to the calendar year in which they turn age 62, a person's Social Security retirement benefit can only be estimated until the average annual wages in the year that person turns age 60 are known. Thus, the estimates shown on your Social Security statement may not be accurate if you are not yet age 62 because Social Security wouldn't yet have the data needed to provide a precise calculation.

Before deciding when to file, you should strongly consider using our maximization software to compare your options and determine your best possible filing strategy. The software will also permit you to calculate what we believe is the most accurate possible estimate of your future benefit rates.

Best, Jerry