Social Security Wage Index +5.32%, COLA +3.2%

[jim584672]

For those under age 62 you should see a 5.32% increase in your Social Security statement numbers in November. Social Security is getting a 3.2% COLA next year.

https://www.ssa.gov/oact/cola/AWI.html
https://www.ssa.gov/oact/cola/colasummary.html

[G-Man]

Quote:

Originally Posted by jim584672 For those under age 62 you should see a 5.32% increase in your Social Security statement numbers in November. Social Security is getting a 3.2% COLA next year. https://www.ssa.gov/oact/cola/AWI.html https://www.ssa.gov/oact/cola/colasummary.html

I think it's age 62 and under that would get the AWI increase.

The one question I have is what if your 2023 earned income is one of your Top 35 value without any wage indexing. Would that be reflected in your January or February 2024 Social Security statement and not in your November 2023 statement?

[jim584672]

Quote:

Originally Posted by G-Man I think it's age 62 and under that would get the AWI increase. The one question I have is what if your 2023 earned income is one of your Top 35 value without any wage indexing. Would that be reflected in your January or February 2024 Social Security statement and not in your November 2023 statement?

Last year it showed in November so I am assuming the same this year.

[Exchme]

Not an expert, but reading up on the rules, this is what I get:

Earnings from age 59 and younger are adjusted upward by the Average wage index at age 60. Earnings after 60 get no upward adjustment. The top 35 years of adjusted earnings are averaged to get the average indexed monthly earnings AIME. The AIME is then put through the PIA formula the key to which is the bend points and those are adjusted using the AWI at age 60. So effectively everything through age 60 gets an AWI adjustment. That's the last tax year that's available to the SSA by the time they need to be ready to cut a benefit check at age 62.

There is no adjustment for inflation for age 61. For age 62 and up, the inflation adjustment is via the CPI-W based COLAs the following year. So your first COLA adjustment is made in January of the year you turn 63 (the January check is for December of the year you turned 62)

Quote:

Originally Posted by G-Man I think it's age 62 and under that would get the AWI increase. The one question I have is what if your 2023 earned income is one of your Top 35 value without any wage indexing. Would that be reflected in your January or February 2024 Social Security statement and not in your November 2023 statement?

They can't adjust what they can't see. Your earnings in 2023 earnings will not be available to them until your employer sends in the W-2. For self-employed, they can't see it until you file your tax return. I understand they do the calculation in August or September, but will adjust back so they don't cheat you out of anything.

Note that it won't be too exciting. It is averaged in with the other 34 years and then the formula has bend points that mean the adjustment will be only 15% for if your AIME exceeds $7078. So let's say you replaced a 0 with this year's max of $160,200, then the extra monthly benefit you would get would be:

$160,200/35/12 * 0.15 = $57.20/mo. If you had anything other than a zero you were replacing or didn't reach the maximum $160,200, your increase would be less.

Don't spend it all in one place.

[qwerty3656]

Quote:

Originally Posted by Exchme Not an expert, but reading up on the rules, this is what I get: Earnings from age 59 and younger are adjusted upward by the Average wage index at age 60. Earnings after 60 get no upward adjustment. The top 35 years of adjusted earnings are averaged to get the average indexed monthly earnings AIME. The AIME is then put through the PIA formula the key to which is the bend points and those are adjusted using the AWI at age 60. So effectively everything through age 60 gets an AWI adjustment. That's the last tax year that's available to the SSA by the time they need to be ready to cut a benefit check at age 62. There is no adjustment for inflation for age 61. For age 62 and up, the inflation adjustment is via the CPI-W based COLAs the following year. So your first COLA adjustment is made in January of the year you turn 63 (the January check is for December of the year you turned 62) They can't adjust what they can't see. Your earnings in 2023 earnings will not be available to them until your employer sends in the W-2. For self-employed, they can't see it until you file your tax return. I understand they do the calculation in August or September, but will adjust back so they don't cheat you out of anything. Note that it won't be too exciting. It is averaged in with the other 34 years and then the formula has bend points that mean the adjustment will be only 15% for if your AIME exceeds $7078. So let's say you replaced a 0 with this year's max of $160,200, then the extra monthly benefit you would get would be: $160,200/35/12 * 0.15 = $57.20/mo. If you had anything other than a zero you were replacing or didn't reach the maximum $160,200, your increase would be less. Don't spend it all in one place.

So I turned 60 this year. Do i get an increase?

[Time2]

I'm 68, 69 in Mar next year, did I get an increase in the potential check I will get at 70? Is it 5.2% as in COLA?

[Exchme]

Quote:

Originally Posted by qwerty3656 So I turned 60 this year. Do i get an increase?

Yes, at age 60 you get an adjustment for the 5.32% AWI increase just announced this year. You don't get anything in 2025 (age 61) for inflation calculated next year. After that, you switch to COLA and you will get a COLA adjustment in 2026 for inflation calculated in 2025.

The AWI increase announced in the year you turn 60 is used to adjust age 59 and younger earnings and is also used in the formula used to set the preliminary PIA, which is how the age 60 earnings see the adjustment.

[G-Man]

Quote:

Originally Posted by Exchme Yes, at age 60 you get an adjustment for the 5.32% AWI increase just announced this year. You don't get anything in 2025 (age 61) for inflation calculated next year. After that, you switch to COLA and you will get a COLA adjustment in 2026 for inflation calculated in 2025. The AWI increase announced in the year you turn 60 is used to adjust age 59 and younger earnings and is also used in the formula used to set the preliminary PIA, which is how the age 60 earnings see the adjustment.

So how is age 60 and age 61 earnings used in the formula to calculate preliminary PIA?

[niven]

OK, there's some misinformation in this thread. For those turning 62 next year, the newly announced average wage index does apply to 2021 and earlier earnings to bring them up to the 2022 level. This is the last wage adjustment for those folks.

See https://www.ssa.gov/oact/cola/awifactors.html

Note if you turn 62 later than next year (entering 2025 or later), this page will use estimates for the additional wage factors not yet determined.

[Time2]

I'm confused, I was under the impression that the COLA is added to the amount I was supposed to get at FRA (66y2mo for me) I hit FRA in April 2021. Has Cola added to my monthly SS amount over the last couple years or is it only the 8% for waiting? Also did I get any cola increases added between 62 yrs old and FRA?

[Dtail]

Quote:

Originally Posted by Time2 I'm confused, I was under the impression that the COLA is added to the amount I was supposed to get at FRA (66y2mo for me) I hit FRA in April 2021. Has Cola added to my monthly SS amount over the last couple years or is it only the 8% for waiting? Also did I get any cola increases added between 62 yrs old and FRA?

Once it switches from the Wage Index to a COLA increase, you receive that years' COLA increase whether you have taken SS already or are still waiting to take it.

[gauss]

Quote:

Originally Posted by Dtail Once it switches from the Wage Index to a COLA increase, you receive that years' COLA increase whether you have taken SS already or are still waiting to take it.

.. And, yes, this is in addition to the 8% per year increase delayed retirement credit (DRC) if you delay drawing beyond your full retirement age (FRA).

note: the 8% per year DRC applies to folks with birthyears similar to mine. Earlier folks (ie I think it was before 1960) had different DRC factors applied for delaying SS.

-gauss

[Exchme]

Quote:

Originally Posted by G-Man So how is age 60 and age 61 earnings used in the formula to calculate preliminary PIA?

The preliminary PIA uses age 60 as the last entry as they need to be able to cut you a check at age 62 and 1 month and they need the tax year to be complete, tax return filed and processed. If you work past age 60, those wages aren't indexed but they will make updated PIA each year that you work.

[Exchme]

Quote:

Originally Posted by Exchme Not an expert, but reading up on the rules, this is what I get: Earnings from age 59 and younger are adjusted upward by the Average wage index at age 60. Earnings after 60 get no upward adjustment. The top 35 years of adjusted earnings are averaged to get the average indexed monthly earnings AIME. The AIME is then put through the PIA formula the key to which is the bend points and those are adjusted using the AWI at age 60. So effectively everything through age 60 gets an AWI adjustment. That's the last tax year that's available to the SSA by the time they need to be ready to cut a benefit check at age 62. There is no adjustment for inflation for age 61. For age 62 and up, the inflation adjustment is via the CPI-W based COLAs the following year. (this part is wrong, see new comment below)So your first COLA adjustment is made in January of the year you turn 63 (the January check is for December of the year you turned 62)

Let me resuscitate this thread long enough to say it looks like I made an error in the part I highlighted in red above. Essentially your benefit goes up by the Average Wage Index based on the middle of the third quarter of the year in which you turn 61, which is applied in January of the year you turn 62.

The adjustment made in January of the year you turn 63 and later switches from the AWI to the CPI-W. But you never miss a year.

The time lag involved between what we experience and when it gets adjusted makes it all confusing.

To walk through the complexity, wages are indexed by the AWI through the year in which you turn 60 as that is the last year they can be sure to have taxes filed and processed in time for possible claiming at age 62. The result of that wage indexing is your Average Indexed Monthly Earnings, your top 35 years of indexed earnings, divided by 420 months.

In the year you turn 62, you use the AIME in the preliminary PIA formula. That uses bend points that are increased by the average wage index up through the year you turned 61 (since the wage index from when you turned 61 is the latest available in January of the year you turn 62). This is almost the same as full indexing by the AWI through the year you turn 61.

The only difference between this and full indexing by the AWI through the year you turn 61 is if you continue to work. Wages earned in the year you turn 61 or older are not factored up by the AWI, they are used as-is. But if you earn zero it doesn't matter or if you earn the maximum that SS taxed, that maximum moved with the AWI, so it's as if it were indexed. If you are in the middle, then it still wouldn't matter unless that year was in your top 35 years and then it would matter a very tiny amount (a small adjustment to 1 year out of 35).

Doing the above and using my and my wife's wage histories, I can match the SSA.gov benefit numbers, so I think I got it right this time? In the end it essentially boils down to:
- when you are younger, the increases that are shown in January of each year are based on the AWI, including the one you get in January of the year you turn 62. In subsequent years, the benefit is increased by the CPI-W.

[G-Man]

Quote:

Originally Posted by Exchme Let me resuscitate this thread long enough to say it looks like I made an error in the part I highlighted in red above. Essentially your benefit goes up by the Average Wage Index based on the middle of the third quarter of the year in which you turn 61, which is applied in January of the year you turn 62. The adjustment made in January of the year you turn 63 and later switches from the AWI to the CPI-W. But you never miss a year. The time lag involved between what we experience and when it gets adjusted makes it all confusing. To walk through the complexity, wages are indexed by the AWI through the year in which you turn 60 as that is the last year they can be sure to have taxes filed and processed in time for possible claiming at age 62. The result of that wage indexing is your Average Indexed Monthly Earnings, your top 35 years of indexed earnings, divided by 420 months. In the year you turn 62, you use the AIME in the preliminary PIA formula. That uses bend points that are increased by the average wage index up through the year you turned 61 (since the wage index from when you turned 61 is the latest available in January of the year you turn 62). This is almost the same as full indexing by the AWI through the year you turn 61. The only difference between this and full indexing by the AWI through the year you turn 61 is if you continue to work. Wages earned in the year you turn 61 or older are not factored up by the AWI, they are used as-is. But if you earn zero it doesn't matter or if you earn the maximum that SS taxed, that maximum moved with the AWI, so it's as if it were indexed. If you are in the middle, then it still wouldn't matter unless that year was in your top 35 years and then it would matter a very tiny amount (a small adjustment to 1 year out of 35). Doing the above and using my and my wife's wage histories, I can match the SSA.gov benefit numbers, so I think I got it right this time? In the end it essentially boils down to: - when you are younger, the increases that are shown in January of each year are based on the AWI, including the one you get in January of the year you turn 62. In subsequent years, the benefit is increased by the CPI-W.

Wow. This is complicated. Can you illustrate your point for someone that turned 60 in August of this year.

[Exchme]

Quote:

Originally Posted by G-Man Wow. This is complicated. Can you illustrate your point for someone that turned 60 in August of this year.

Sorry, I got so far down in the weeds, I'll never remember either! Let's try an easier way to remember.

This is not the language that SS uses, but let's phrase it as if you are not eligible to collect benefits at the start of the year, then you got the AWI adjustment in January, if you are already eligible to collect benefits, you only got the CPI-W.

For you, at the start of 2024, you will be 60, so the adjustment you get in January is based on the AWI as determined in the middle of the 3rd quarter in 2023, that turned out to be 5.32% (vs. the CPI-W at 3.2%).

In January, 2025, you are 61, so still not eligible to collect, so still get adjusted up by the AWI.

Come 2026 and thereafter, you start the year eligible to collect benefits (you are already 62 or older), so only get CPI-W.

[G-Man]

Quote:

Originally Posted by Exchme Sorry, I got so far down in the weeds, I'll never remember either! Let's try an easier way to remember. This is not the language that SS uses, but let's phrase it as if you are not eligible to collect benefits at the start of the year, then you got the AWI adjustment in January, if you are already eligible to collect benefits, you only got the CPI-W. For you, at the start of 2024, you will be 60, so the adjustment you get in January is based on the AWI as determined in the middle of the 3rd quarter in 2023, that turned out to be 5.32% (vs. the CPI-W at 3.2%). In January, 2025, you are 61, so still not eligible to collect, so still get adjusted up by the AWI. Come 2026 and thereafter, you start the year eligible to collect benefits (you are already 62 or older), so only get CPI-W.

Great. So my wife has 2 more years (2024 & 2025) of wage indexing that would apply to her 2021 and 2022 earnings. In year 2026, COLA increases start.

However, the wage indexing factor for age 60 & 61 salary will always be 1.

Please verify this is correct.

What if your age 60 and 61 salary with an indexing factor of 1 is higher than those early years of wage indexing, can those be used in the calculation for the Top 35 earning years?

[jim584672]

I checked my Social Security statement this morning and they updated the numbers with the Wage Index increase of 5.32%.

[Dtail]

Quote:

Originally Posted by jim584672 I checked my Social Security statement this morning and they updated the numbers with the Wage Index increase of 5.32%.

Same with the 3.2% COLA increase.

[gauss]

Quote:

Originally Posted by Exchme Sorry, I got so far down in the weeds, I'll never remember either! Let's try an easier way to remember. This is not the language that SS uses, but let's phrase it as if you are not eligible to collect benefits at the start of the year, then you got the AWI adjustment in January, if you are already eligible to collect benefits, you only got the CPI-W. For you, at the start of 2024, you will be 60, so the adjustment you get in January is based on the AWI as determined in the middle of the 3rd quarter in 2023, that turned out to be 5.32% (vs. the CPI-W at 3.2%). In January, 2025, you are 61, so still not eligible to collect, so still get adjusted up by the AWI. Come 2026 and thereafter, you start the year eligible to collect benefits (you are already 62 or older), so only get CPI-W.

I was under the impression that for the year you turn 62, you would not receive the CPI adjustment. You would receive it in future years however. Perhaps a small distinction?

Quote:

Originally Posted by jim584672 I checked my Social Security statement this morning and they updated the numbers with the Wage Index increase of 5.32%.

Thanks for that! So it looks like the mySocialSecruity site is updated around Nov 15.

-gauss