Do Social Security's estimates of my future benefit include annual cost of living adjustments (COLAs)? As a hypothetical example, let's say my benefit is 8 percent smaller if I take it at age 62 than if I start at 63. If there's a 1.7 percent COLA before I take it at 63, is the real difference of waiting that extra year only 6.3 percent (8 percent minus the COLA) or is it 9.7 percent (8 percent plus the COLA)?

The latter. In your example, your benefit at age 63 is 8 percent more in real, inflation-adjusted dollars than it would be if you took it at 62.

As you point out, the earlier you start Social Security, the smaller your initial benefit. But it's a mistake to focus solely on initial benefit differences when deciding when to begin Social Security. What's really important is the difference your decision will make in the size of your benefit checks by the time you're in your 80s.

Here's an example.

Let's say if you retire next year at age 62, your starting benefit is $1,245. Assuming you get the annual COLAs projected by the Social Security Administration, by the time you're 86, your benefit will be $2,414. By contrast, if you can afford to wait four years and start Social Security at 66, your initial benefit will be $2,009 -- and at age 86 (again using the agency's own estimated future COLAs), your benefit will be $3,423.

Remember, your Social Security benefit lasts for your spouse's lifetime as well as yours. If you're both 65 years old today, there's a 68 percent chance one of you will live to 86, a 45 percent chance one of you will live to 90, and an 18 percent chance one of you lives to 95.

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THE BOTTOM LINE Social Security is inflation-adjusted longevity insurance.

WEBSITES WITH MORE INFORMATION nwsdy.li/benefitcalculator and nwsdy.li/estimateSocSec

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