Forget the COLA. Here's the Social Security Increase You Should Care About.

Each year, many current and future Social Security beneficiaries wait eagerly for news of the Social Security cost-of-living adjustment (COLA). In most years, a COLA results in an increase to monthly Social Security payments.

While this number can impact seniors' finances, it's actually not the increase that most people should focus on. Instead, there's a much more meaningful one that could affect retirees' finances in profound ways. This is the increase retirees should focus on earning if they can.

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Earning this increase can make a big impact on your Social Security

The increase that retirees should focus on is the benefits bump that can come with waiting to claim their retirement checks. See, the COLA simply increases retirement benefits each year based on inflation. It does not give retirees more buying power through their benefits. It helps them to avoid losing ground when prices rise over time.

But if you delay your Social Security claim, you permanently increase your benefit for each month you wait beyond the earliest eligibility age of 62. This increase comes from either avoiding early-filing penalties that apply when you claim Social Security before your full retirement age (FRA) or from earning delayed retirement credits that are available any month you wait for benefits beyond FRA.

Waiting to claim to grow your benefits not only helps you to earn a higher monthly check. Multiple studies have demonstrated that it maximizes your odds of earning the most lifetime benefits. In some cases, delaying until 70 can result in hundreds of thousands of dollars in extra lifetime discretionary spending.

How much can you increase your Social Security check?

So, how much can waiting to claim Social Security increase your monthly payment? It depends on how long you delay.

Let's say, for example, that you have a standard benefit of $2,000 that you would receive if you claimed at FRA. That's your primary insurance amount. If you claim it at 62 with an FRA of 67, however, you would reduce that amount to just $1,400 after early-filing penalties reduce your payment by 30%. If you wait until 70, though, you would increase it by 24% and end up with $2,480 per month.

That's a $1,080 per month increase, and your benefit at 70 is just over 77% higher if you claim it at 70 compared with 62.

This benefit increase actually has a material impact on your ability to enjoy your retirement. If it is possible for you to wait to claim Social Security benefits and you have no reason to believe that you'll pass away before you break even for delaying your claim, then you should think seriously about putting off starting your benefits for as long as you can, ideally until you've maxed them out at 70.

If you've already retired, it may not be too late to increase benefits either. If you're less than 12 months out from claiming, you could potentially rescind your benefits claim if you could pay back any benefits you received to date. And if you've already passed your FRA and can afford to, you could suspend your benefit to start earning delayed retirement credits that give you more money later.

It's worth considering these options if getting a larger Social Security benefit would help your financial situation in the long run.

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