Strategic Decision-Making: How to Choose the Best Path for You
Understanding these rules is one thing; applying them is another. Let’s walk through a scenario that demonstrates how choosing the right month can lead to a significantly higher lifetime income. This is one of the most important Social Security claiming strategies available to those nearing age 70.
The core strategy is this: if a significant COLA is anticipated, it can be advantageous to delay claiming benefits until January, even if you reach your optimal claiming age (like 70) a few months earlier in the year.
A Tale of Two Retirees: The January Advantage
Let’s consider two individuals, Robert and Susan. Both were born in the same year and have identical earnings histories. They both turn 70 years old in October 2024 and have decided to delay claiming until that age to maximize their monthly payments. At age 70, their monthly benefit amount, before any adjustments, is calculated to be $4,500.
Let’s also assume that a healthy 4.0% COLA is announced in the fall of 2024, which will take effect in January 2025.
Robert’s Strategy: Claim Immediately
Robert turns 70 in October 2024 and decides to file for his benefits right away. His first month of entitlement is October. He will receive his first check for $4,500 in November. He will continue to receive $4,500 for November (paid in December) and December (paid in January).
In January 2025, the 4.0% COLA is applied to his benefit. His new monthly amount will be $4,500 x 1.04 = $4,680. This will be his new base benefit going forward, subject to future COLAs.
Susan’s Strategy: The Strategic Wait
Susan also turns 70 in October 2024. However, she has been following the inflation numbers and suspects a strong COLA is coming. Instead of claiming immediately, she decides to wait. She files her application in the fall but sets her benefit start date for January 2025.
By doing this, she forgoes three months of payments: October, November, and December. That’s a total of $13,500 ($4,500 x 3) that she will not receive.
However, because she is not yet in “payment status” when the COLA is applied, something different happens. The 4.0% COLA is applied to her age-70 benefit amount before her payments begin. The SSA calculates her new starting benefit as $4,500 x 1.04 = $4,680.
Wait, isn’t that the same amount Robert gets? Here is the crucial difference. Robert’s benefit was based on his age 70 amount. Susan’s benefit is also based on her age 70 amount. But because she waited to claim, the delayed retirement credits she earned for October, November, and December are still factored in. She continued to earn an increase for those months.
Let’s refine the calculation. The increase for delaying past FRA is two-thirds of 1% per month (8% per year). So by waiting from October to January (3 months), she earns an additional 2% increase on her FRA benefit. For simplicity in our example, let’s stick to the core COLA concept which is the most powerful driver.
The most important point is how the COLA interacts with delayed credits. When Susan delays, the COLA is applied to a benefit base that has already been increased by those delayed retirement credits. Robert claims in October, so his COLA is applied to his October benefit amount. Susan waits until January. The SSA will calculate her benefit as if she claimed in January, which includes the delayed credits for October, November, and December. Then, the COLA is applied to that higher figure.
Let’s re-run the numbers with that insight. Assume her FRA benefit was $3,200. By age 70 in October, it grew to $4,500. By waiting until January, she earns three more months of delayed credits. That adds 2% (0.667% x 3) to her FRA benefit, not her age-70 benefit. So that’s an extra $64 per month. Her new base becomes $4,564. Now, the 4% COLA is applied to this higher amount: $4,564 x 1.04 = $4,746.56.
Susan’s monthly benefit is $66.56 higher than Robert’s ($4,746.56 vs $4,680). This may seem small, but it’s a permanent increase. Over 20 years, that’s over $15,974 more, not even counting future COLAs compounding on this higher base. She recovers the “lost” $13,500 in about 17 years, and every year after that is pure gain. For someone in good health, this is a winning long-term strategy to maximize benefits.
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