When Do Social Security Benefits Increase?
Understand the various ways your Social Security benefits can increase and adapt over time, helping you maximize your financial future.
Social Security benefits serve as a foundational financial support system for millions of Americans, providing security during retirement, disability, or in the event of a wage earner’s passing. While these benefits offer a baseline income, their monthly amount is not fixed. The benefit amount can change over time through various mechanisms designed to maintain purchasing power and reflect an individual’s earnings history. Understanding these adjustment processes is important for current and future beneficiaries to plan their financial future.
Cost-of-Living Adjustments (COLA)
One of the most common ways Social Security benefits increase is through the annual Cost-of-Living Adjustment (COLA). This adjustment helps ensure that the purchasing power of benefits is not eroded by inflation over time. The COLA is typically announced by the Social Security Administration (SSA) in October of each year. These adjustments then take effect with benefits paid in January of the following year.
The calculation of the COLA is based on changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This specific index, calculated monthly by the Bureau of Labor Statistics, measures the average change in prices of goods and services purchased by households where income primarily comes from clerical or wage occupations. The COLA percentage reflects the increase in the CPI-W from the third quarter of the previous year to the third quarter of the current year. If there is no increase in the CPI-W, or if the calculated increase is zero, no COLA is applied for that year.
This adjustment applies universally to all Social Security beneficiaries, regardless of when they began receiving their payments.
Increasing Benefits Through Delayed Claiming
Another significant method for increasing Social Security benefits involves delaying claiming them beyond their Full Retirement Age (FRA). The FRA is a specific age, determined by your birth year, at which you are eligible to receive 100% of your Primary Insurance Amount (PIA). For those born in 1960 or later, the FRA is 67, while for those born earlier, it falls between 66 and 67 years.
Delaying benefits past FRA, up until age 70, results in the accumulation of Delayed Retirement Credits (DRCs). These credits provide a permanent increase to the monthly benefit amount. For individuals born in 1943 or later, each year benefits are delayed past FRA adds 8% to their monthly payment. This annual increase is earned at a rate of two-thirds of one percent for each month of delay.
For instance, if an individual’s FRA is 67, waiting until age 70 to claim benefits would result in a 24% increase (3 years x 8% per year) over their FRA benefit amount. There is no additional benefit increase for delaying beyond age 70, as DRCs stop accruing at this point. This strategy can lead to a substantially higher monthly payment throughout retirement, making it a valuable planning consideration for those who can defer claiming.
Benefit Recomputation from Continued Work
Social Security benefits are calculated based on an individual’s earnings history, specifically using their highest 35 years of indexed earnings. These earnings are adjusted for inflation to reflect their value in current dollars. If an individual has fewer than 35 years of earnings, the calculation fills in the missing years with zero earnings, which can reduce the overall benefit amount.
When an individual continues to work while already receiving Social Security benefits, or even before claiming, their benefit amount can be recomputed. This recomputation occurs automatically each year if their current year’s earnings are higher than one of the 35 years previously used in their benefit calculation. The new, higher earnings can replace a lower-earning year or a zero-earning year in the original 35-year average.
If the new earnings result in a higher average indexed monthly earnings, the Social Security Administration will adjust the benefit upward. This increase is a direct result of an updated earnings record, reflecting a more robust contribution to the system. The recomputation process typically occurs around the fall of the year following the new earnings, with any benefit increase applied retroactively to January of that year.