Every month you delay taking Social Security up until you turn...

Every month you delay taking Social Security up until you turn 70 earns you a bigger eventual benefit. Credit: Getty Images/iStockphoto/JJ Gouin

Social Security's recently announced 5.9% cost-of-living adjustment is the biggest in four decades — good news for those who are already receiving benefits and one more reason to delay for those who haven't started collecting yet.

Anyone nearing 60 or in their early 60s has likely already heard plenty about the big financial payoff if you postpone when you start collecting Social Security past age 62. Every year (actually, every month) you delay up until you turn 70 earns you a bigger eventual benefit.

The formula for exactly how much more you get each year is based on your birth year. For someone born in 1960 or later, at age 67 — what the Social Security programs refer to as your full retirement age (FRA) — you are entitled to 100% of your benefit. Start at age 62 and your benefit will be 70% of what you would get if you waited until 67.

Wait until age 70 and your benefit will earn a delayed credit of another 8% a year for those three years, earning you a benefit 124% of your FRA benefit.

But the payoff for waiting is actually even bigger than that. Every year between age 62 and 70 that you wait to start collecting, you not only get the delayed credit, but you also earn whatever the official Social Security inflation COLA is for that year.

Recent research confirms that we’re collectively getting smarter about when to start Social Security benefits. Since 1985 the percentage of men who settled for the lowest possible benefit by claiming at age 62 has fallen by 27%, and for women those choosing age 63 has declined by 21%.

Still, fewer than 10% of men or women are waiting until age 70 to start.

It’s important to note that for married couples, what matters most is that the highest earner delays until age 70. When a spouse dies, the survivor is entitled to one benefit, not both. This means that every surviving spouse will encounter a drop in income.

The goal is to minimize the size of that income hit. And the best way to do that is to make sure the highest earner waits to collect the highest possible benefit. That ensures that regardless of who survives, that person will get the biggest possible benefit.

If you have retirement savings in a 401(k) or individual retirement account (IRA), research suggests you’ll be financially better off using those savings in your 60s, rather than starting your Social Security benefit early.

Another option is to reframe working in your 60s. There may be an opportunity to work part time, to earn just enough (after-tax) to offset the Social Security benefit you won’t receive if you wait.

And if the thought of downsizing is something you’ve got in the back of your mind, maybe it’s time to move it to the front. The home that was great for raising your family may not have an age-in-place friendly layout, or it could be socially isolating.

Making a move sooner is going to be a lot easier than being pushed to change in your 80s. The first $250,000 in capital gains on a home sale is tax free. (For married couples filing a joint tax return, it’s $500,000.) Depending on your gain, and where you intend to land, you could pocket enough from the sale to support you while you wait until age 70 to claim the biggest possible inflation-adjusted Social Security benefit.

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