How Social Security Applies DRCs and COLA: Understanding the Process

I have a client who delayed his benefit after FRA for 4 months which equates to a total of $60 (DRC) which will be added in January. His current benefit is $3,488 a month gross.  What is the order of applying DRCs and COLA or is this a simultaneous calculation?

When it comes to applying Delayed Retirement Credits (DRCs) and Cost-of-Living Adjustments (COLA) to Social Security benefits, the order of operations is as follows:

1. Cost-of-Living Adjustment (COLA):

   • Applied First: The Social Security Administration (SSA) first applies the annual COLA to your client’s Primary Insurance Amount (PIA). The PIA is the amount they would receive at Full Retirement Age (FRA) before any adjustments for DRCs or early filing.

2. Delayed Retirement Credits (DRCs):

   • Applied After COLA: After the COLA is applied to the PIA, the SSA then adds any DRCs that your client has earned. DRCs increase the benefit amount for each month they delayed taking benefits beyond FRA, but these credits are added after the COLA has been calculated.

3. Impact on Benefit Calculation:

   • Order Matters: The order of applying COLA first and then DRCs is important because it slightly alters the final benefit amount. While COLA increases the PIA, DRCs are added afterward, ensuring that the COLA is applied to the base benefit before any additional credits.

For your client with a current benefit of $3,488, the $60 increase from DRCs will be added after the COLA is applied to his PIA. This ensures that both adjustments are correctly factored into his final benefit amount.

If you have any more questions or need further clarification, feel free to reach out!

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