[Can I add Social Security COLA to estimated future benefits?]

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Tom_T
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[Can I add Social Security COLA to estimated future benefits?]

Post by Tom_T »

[Merged this post and replies into existing topic - moderator prudent]
[Moved back into a stand-alone thread from: SS Update. COLA 5.9%. Taxable Maximum for 2022 increases to $147,000 (locked) --admin LadyGeek


Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
sc9182
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Re: Social Security 5.9% COLA

Post by sc9182 »

Guessing yea, but never yet looked at SS inflation adjustments - over long term.
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Tom_T
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Re: Social Security 5.9% COLA

Post by Tom_T »

I guess I will find out early next year when my SSA information is updated on the site.
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Re: Social Security 5.9% COLA

Post by marcopolo »

Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
I believe if you are under age 60, the increase is tied to the wage index, not inflation index, though the two often move in tandem.
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David Jay
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Re: Social Security 5.9% COLA

Post by David Jay »

marcopolo wrote: Wed Oct 13, 2021 12:20 pm
Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
I believe if you are under age 60, the increase is tied to the wage index, not inflation index, though the two often move in tandem.
Yes, that’s the way it works. Your past wages will be indexed (one time) per the AWI at age 60. Then you will accumulate the Social Security COLA beginning at age 62 - even if you don’t file.
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Re: Social Security 5.9% COLA

Post by marcopolo »

David Jay wrote: Wed Oct 13, 2021 12:24 pm
marcopolo wrote: Wed Oct 13, 2021 12:20 pm
Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
I believe if you are under age 60, the increase is tied to the wage index, not inflation index, though the two often move in tandem.
Yes, that’s the way it works. Your past wages will be indexed (one time) per the AWI at age 60. Then you will accumulate the Social Security COLA beginning at age 62 - even if you don’t file.
What happens between age 60 and 62?
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Re: Social Security 5.9% COLA

Post by JoeRetire »

Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits?
Yes.
Just remember: it's not a lie if you believe it.
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Re: Social Security 5.9% COLA

Post by Tom_T »

marcopolo wrote: Wed Oct 13, 2021 12:27 pm
David Jay wrote: Wed Oct 13, 2021 12:24 pm
marcopolo wrote: Wed Oct 13, 2021 12:20 pm
Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
I believe if you are under age 60, the increase is tied to the wage index, not inflation index, though the two often move in tandem.
Yes, that’s the way it works. Your past wages will be indexed (one time) per the AWI at age 60. Then you will accumulate the Social Security COLA beginning at age 62 - even if you don’t file.
What happens between age 60 and 62?
+1 (I'm nearly 63)
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Re: Social Security 5.9% COLA

Post by neurosphere »

marcopolo wrote: Wed Oct 13, 2021 12:27 pm
David Jay wrote: Wed Oct 13, 2021 12:24 pm
marcopolo wrote: Wed Oct 13, 2021 12:20 pm
Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
I believe if you are under age 60, the increase is tied to the wage index, not inflation index, though the two often move in tandem.
Yes, that’s the way it works. Your past wages will be indexed (one time) per the AWI at age 60. Then you will accumulate the Social Security COLA beginning at age 62 - even if you don’t file.
What happens between age 60 and 62?
Your benefit is based on your entire wage history (top 35 indexed years) but is not calculated and cannot be known until age 62 (ish). Once that benefit is calculated it's gets a COLA (and if there are more earnings it may increase in addition to the COLAs).

There is nothing magic about 60-62, EXCEPT that all earnings after 60 are no longer indexed. That is,$10,000 of earnings at age 60, 61, 62, 63...100+ are all weighted the same at "1". Whereas $10,000 in earnings at age 50, 51, 52, etc have their individual weighting (>1, usually).

So indexing stops at age 60 for ALL additional earnings. From 62 onwards, the benefit is known and increases with inflation. That period between 60 and 62 is not all that "special". It's only that it's not until 62 that a PIA/benefit is known, and prior to that there is no such concept of a "COLA" because there is no benefit to apply the adjustment to.

Hope that makes sense. :?
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Re: Social Security 5.9% COLA

Post by Tom_T »

neurosphere wrote: Wed Oct 13, 2021 12:38 pm Your benefit is based on your entire wage history (top 35 indexed years) but is not calculated and cannot be known until age 62 (ish). Once that benefit is calculated it's gets a COLA (and if there are more earnings it may increase in addition to the COLAs).
Not yet clear. :(

I've been able to see projected SS benefits for myself, on the SS site, well before age 62, so I don't know what you mean by "cannot be known." Certainly they can, and have, estimated it for ages 62, 66, and 70.

I am now 62, and I know my projected FRA benefit as of this past January. I am asking if next January, I will see a projected FRA benefit that is 5.9% higher, or will it be some lower amount.
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Re: Social Security 5.9% COLA

Post by David Jay »

marcopolo wrote: Wed Oct 13, 2021 12:27 pm
David Jay wrote: Wed Oct 13, 2021 12:24 pm
marcopolo wrote: Wed Oct 13, 2021 12:20 pm
Tom_T wrote: Wed Oct 13, 2021 11:15 am Social Security COLA is 5.9%. Does that mean I can add 5.9% to estimated future benefits? I'm still a few years away from claiming.
I believe if you are under age 60, the increase is tied to the wage index, not inflation index, though the two often move in tandem.
Yes, that’s the way it works. Your past wages will be indexed (one time) per the AWI at age 60. Then you will accumulate the Social Security COLA beginning at age 62 - even if you don’t file.
What happens between age 60 and 62?
Details here: viewtopic.php?f=2&t=210395
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Re: Social Security 5.9% COLA

Post by neurosphere »

neurosphere wrote: Wed Oct 13, 2021 12:38 pm
There is nothing magic about 60-62, EXCEPT that all earnings after 60 are no longer indexed. That is,$10,000 of earnings at age 60, 61, 62, 63...100+ are all weighted the same at "1". Whereas $10,000 in earnings at age 50, 51, 52, etc have their individual weighting (>1, usually).
Furthermore, for those who have earnings greater than the taxable maximum, the fact that indexing stops at age 60 helps to increase your benefit, in a manner of speaking.

For example, suppose one has made and will make a flat $200,000 forever. And take arbitrary/sample taxable maximums of:

-- $50,000 at age 50, $51,000 at age 51...$59,000 at age 59, $60,000 at age 60...

Due to indexing, the relative contribute to one's benefit will be the same for each year (the index and the maximum in tandem, with allowances for rounding). Essentially all years are "counted as" $60,000 towards earnings calculations. But at age 61, if the taxable maximum is increased as per the pattern to $61,000 then there are many years of "$60k" in earnings and one year at $61k. So despite always being above the taxable maximum, the earnings in year 61 are weighted more. Well, they are weighted at "1" but the relative effect of the increasing taxable maximum is such that years after 60 are worth more.

Even if one has 35 previous years at the taxable maximum, additional earnings at/above the taxable maximum starting from age 61 onwards will have the net result of increasing the benefit due to replacement of earlier years with lower indexed earnings.

The graph below illustrates the concept. It represents someone who is age 61 who had 35 years of maximal earnings through age 60, and then continue to earn the taxable maximum until age 80. The curved portions of the lines represent the effect of additional earnings from age 60-80 on the benefit, despite the fact the earning already had 35 years of "max" earnings by age 60.

Image
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Re: Social Security 5.9% COLA

Post by antiqueman »

For those that are over 62 what increases ?Is it the PIA.

I am 67 and haven’t started SS yet. My PIA is 2950. Does it increase 5.9 percent ?Or my last years estimated benefit of about $ 3200 month?
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Re: Social Security 5.9% COLA

Post by neurosphere »

Tom_T wrote: Wed Oct 13, 2021 12:47 pm
neurosphere wrote: Wed Oct 13, 2021 12:38 pm Your benefit is based on your entire wage history (top 35 indexed years) but is not calculated and cannot be known until age 62 (ish). Once that benefit is calculated it's gets a COLA (and if there are more earnings it may increase in addition to the COLAs).
Not yet clear. :(

I've been able to see projected SS benefits for myself, on the SS site, well before age 62, so I don't know what you mean by "cannot be known." Certainly they can, and have, estimated it for ages 62, 66, and 70.

I am now 62, and I know my projected FRA benefit as of this past January. I am asking if next January, I will see a projected FRA benefit that is 5.9% higher, or will it be some lower amount.
You'll note I wrote 62 "ish" in the text you quoted. :) But yes, 61 is more accurate in general.

Those who are 61 today, and turn 62 during 2022 could not calculate their benefit until today's numbers were released. If you are 62 now, your benefit was determined Oct 2020.
Last edited by neurosphere on Wed Oct 13, 2021 1:19 pm, edited 1 time in total.
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Re: Social Security 5.9% COLA

Post by neurosphere »

antiqueman wrote: Wed Oct 13, 2021 1:10 pm For those that are over 62 what increases ?Is it the PIA.

I am 67 and haven’t started SS yet. My PIA is 2950. Does it increase 5.9 percent ?Or my last years estimated benefit of about $ 3200 month?
I can't recall off the top of my head whether the actual PIA for an individual is redefined which each COLA (I think not) or rather it's a multiplier that changes (I think so). But the benefit is essentially calculated as:

[PIA x (adjustment for start date) x (COLA 1 x COLA 2 x COLA 3...)]

So practically it doesn't matter whether the PIA itself is increased by 5.9% or if a new COLA multiplier is attached for this year. The net result is an increase in the benefit of 5.9% (if other parameters don't change).

Edited to add: sscritic reminds me that the PIA itself is adjusted each year:
https://www.ssa.gov/OP_Home/cfr20/404/404-0270.htm
§ 404.270. Cost-of-living increases.
Your primary insurance amount may be automatically increased each December so it keeps up with rises in the cost of living. These automatic increases also apply to other benefit amounts, as described in § 404.271.
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Tom_T
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Re: Social Security 5.9% COLA

Post by Tom_T »

OK, thanks. Obviously not a big deal since I'm still a few years away from filing, but it will be nice to put a higher number into my projections spreadsheet. I'll just check my benefits page early next year, once they've updated the earnings history to include 2021.
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Re: Social Security 5.9% COLA

Post by antiqueman »

[quote=neurosphere post_id=6272656 time=1634149168 user_id=16909]
[quote=antiqueman post_id=6272631 time=<a href="tel:1634148622">1634148622</a> user_id=12852]
For those that are over 62 what increases ?Is it the PIA.

I am 67 and haven’t started SS yet. My PIA is 2950. Does it increase 5.9 percent ?Or my last years estimated benefit of about $ 3200 month?
[/quote]



Edited to add: sscritic reminds me that the PIA itself is adjusted each year:
https://www.ssa.gov/OP_Home/cfr20/404/404-0270.htm
§ 404.270. Cost-of-living increases.
[quote][b][i]Your primary insurance amount[/i][/b] may be automatically increased each December so it keeps up with rises in the cost of living. These automatic increases also apply to other benefit amounts, as described in § 404.271.[/quote]
[/quote]

So w weigh SSCritics input I assume I multiply my PIA times 5.9 percent. Then apply the deferred credit addition percentage for delaying each month past FRA to obtain each monthly amount from FRA until 70?
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Re: Social Security 5.9% COLA

Post by JoeRetire »

Tom_T wrote: Wed Oct 13, 2021 12:47 pm I am now 62, and I know my projected FRA benefit as of this past January. I am asking if next January, I will see a projected FRA benefit that is 5.9% higher.
At least.

Your projected FRA benefit could be even more than 5.9% higher, if for example you are still working.
Just remember: it's not a lie if you believe it.
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JoeRetire
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Re: Social Security 5.9% COLA

Post by JoeRetire »

antiqueman wrote: Wed Oct 13, 2021 1:10 pm For those that are over 62 what increases ?Is it the PIA.

I am 67 and haven’t started SS yet. My PIA is 2950. Does it increase 5.9 percent ?Or my last years estimated benefit of about $ 3200 month?
Both.
Just remember: it's not a lie if you believe it.
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Re: [Can I add Social Security COLA to estimated future benefits?]

Post by LadyGeek »

Tom_T's thread had been moved into the locked thread SS Update. COLA 5.9%. Taxable Maximum for 2022 increases to $147,000.

After further review, Tom_T is asking about COLA estemates - not about the 5.9% increase itself. The thread is now back as a stand-alone discussion. I retitled the thread.

Please stay focused on the OP's question.
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Re: Social Security 5.9% COLA

Post by 22twain »

Tom_T wrote: Wed Oct 13, 2021 12:47 pm
neurosphere wrote: Wed Oct 13, 2021 12:38 pm Your benefit is based on your entire wage history (top 35 indexed years) but is not calculated and cannot be known until age 62 (ish). Once that benefit is calculated it's gets a COLA (and if there are more earnings it may increase in addition to the COLAs).
Not yet clear. :(

I've been able to see projected SS benefits for myself, on the SS site, well before age 62, so I don't know what you mean by "cannot be known." Certainly they can, and have, estimated it for ages 62, 66, and 70.
I think we're just dancing with different interpretations of words here. In the context of your quote, "known" was probably intended to mean "exactly known". "Estimated" = "approximately known." Not everybody writes with mathematical precision all the time. :happy
I am now 62, and I know my projected FRA benefit as of this past January. I am asking if next January, I will see a projected FRA benefit that is 5.9% higher, or will it be some lower amount.
If you turned 62 this year, your wage-indexing factors should now be definitively established, using the values of the national average wage index through 2019. It should be possible to calculate your Principal Insurance Amount. Applying your current early retirement factor, based on the number of months prior to your FRA, gives the benefit you would get if you claimed it right now.

If you claim at FRA, your benefit will be the PIA plus all the COLAs from now until then, beginning with the 5.9% (for next year) that was just announced. I don't know when the 5.9% increase will actually show up in the estimate in your Social Security statement. January would be the obvious guess, but I don't know this from personal experience.

I'm waiting until 70 to claim SS. Last week (before the COLA announcement), I downloaded my SS statement. Its projected age-70 benefit agrees exactly with my spreadsheet which calculates my PIA and applies the delayed retirement credits to age 70 and the COLAs preceding the new 5.9%. Maybe I'll remember to check my statement once a month for the next few months to see when the 5.9% shows up.
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