Social Security: Is the Latest COLA Increase a Reason To Collect Early?

Senior woman working on home finance.
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One of the biggest decisions you’ll have to make as you approach retirement age is when to start collecting Social Security benefits. You can begin collecting as early as age 62 and as late as age 70, and most financial advisors recommend waiting as long as you can to ensure a bigger monthly payment.

Now that the Social Security Administration has announced its biggest cost-of-living adjustment in decades, you might wonder whether that’s a reason to collect early rather than wait. The 2023 COLA is 8.7%, which means the average Social Security check will rise by more than $140 a month beginning next year. That’s the biggest percentage increase since 1981.

If you have reached retirement age but have not yet applied for Social Security, is this a good time to do it? That depends on a number of variables, experts say.

Rayyan Anees, a senior wealth planning strategist with Wells Fargo and National Social Security Advisor certificate holder, told GOBankingRates in an email that there are both positives and negatives to filing now, assuming you are at least age 62 and under age 70.

Here are the pros of filing now:

  • While you might get a lower benefit now in comparison to what you might be eligible for at full retirement age or later, you will be collecting benefits for a longer period of time. Depending on your circumstances, this could mean less pressure on your portfolio assets.
  • If you need Social Security income to cover your expenses, the high COLA in 2023 can provide a needed financial boost 
Are You Retirement Ready?

Here are the cons of filing now:

  • If you are full retirement age or older, your benefit will continue to increase at a rate of 8% per year until age 70 because of delayed retirement credits — a rate of gain very close to the 2023 COLA of 8.7%. By filing now, you will be giving up a larger future benefit.
  • If you are under FRA, your benefit will be subject to a permanent reduction.
  • If you are under FRA and still working for earned income (W-2/self-employment), you will be subject to the earnings test. This means that for every $2 earned in excess of $21,240 in 2023, the SSA will withhold $1 of your benefits. If you reach full retirement age in 2023, the earnings limit increases to $56,520 and $1 in benefits will be withheld for every $3 in earnings above the limit.

One thing you should keep in mind when weighing the advantages of enrolling in Social Security early is that the 8.7% COLA is not a “raise,” said Kelly LaVigne, vice president of consumer insights at Allianz Life. Instead, it’s a “necessary adjustment to help ensure that retirees living on a fixed income can keep up with record inflation.”

LaVigne says the COLA news underscores the importance of having a “solid Social Security strategy” as part of your retirement plan. According to Allianz’s recent Retirement Risk Readiness Study, 40% of near-retirees and 35% of pre-retirees believe Social Security will meet their retirement needs. However, only 10% of those already retired said that’s the case.

Even with a historically high COLA in 2023, you shouldn’t expect the extra money to meet all of your financial needs.

Are You Retirement Ready?

“If you have a retirement plan, you should have contingencies built in for challenging conditions/volatility like we’re experiencing right now,” LaVigne told GOBankingRates in an email. “Miscalculating how much you can depend on Social Security benefits can have a detrimental effect on your financial health throughout retirement.”

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