This month the Social Security Administration announced the largest jump in payout since the early 80’s providing an 8.7% increase to benefits for 2023.
If you’re already claiming Social Security, this is a very exciting statement. If you aren’t claiming yet, however this could cause some anxiety. Are you missing this raise if you are deferring your benefits?
The short answer is no, and here’s why.
Your workers benefit and spousal benefits for social security are based on a “main” number so to speak called your PIA (Primary Insurance Amount). This is the amount that you are entitled to when you reach full retirement age.
The PIA is calculated by averaging your 35 highest paying years (indexed for inflation) then applying a formula that is determined at age 62. After that point, your earnings can still change, but your formula is set.
After age 62, any COLA increases are applied to that PIA number. This means that if you are still in peak earnings years and are getting a big COLA, you could see a substantial increase in your PIA amount.
Not at age 62 yet and feel like you’re missing out? Don’t worry. The PIA formula itself also gets changed for inflation each year to include more of your average earnings. For instance, in 2016 the first line of the formula used 90% of earnings over $856 and in 2022 that has increased to 90% of earnings over $1,115 dollars.
The cap for social security wages will also go up to allow for more wages to count toward the benefit.
So, don’t worry about rushing to your local Social Security office to make sure you get the big bump. It’s all baked in there for when you do ultimately claim benefits.