Ask the Expert: Social Security options

I know if I postpone Social Security after reaching my full retirement age, my monthly benefit will increase by 8 percent a year for up to four years. But is that 8 percent annual increase offset by the cost of living adjustment (COLA) that I'd get if I were already collecting Social Security? For example, suppose I'd taken Social Security in 2011 at age 66, which is my full retirement age. I'd have been entitled to a 3.6 percent COLA in January 2012. So if I had postponed taking Social Security until January 2012, would my benefit be increased by 8 percent for the delay, plus the 3.6 percent COLA, or just by 8 percent?

The 8 percent delayed retirement credit, often referred to as DRC, is in addition to any cost-of-living increase. In your example, your Social Security benefit would be increased by 11.6 percent — 8 percent for your one-year delay in taking it, plus the 3.6 percent COLA.

The annual credit for delaying Social Security ranges from 3 percent to 8 percent, depending on your date of birth. The earlier you were born, the less you get. People born in 1943 or later get an 8 percent DRC. Those born in 1941 and 1942 get 7.5 percent. It's worth noting that delayed retirement credits accrue on a monthly basis. If you opted to postpone your Social Security application for six months, for example, you'd earn half of an 8 percent DRC, and boost your monthly check by 4 percent.

You don't have to keep working past your full retirement age to get delayed retirement credits. All you have to do is postpone your Social Security application. Of course, you may have to continue working to cover your living expenses while waiting to collect a bigger Social Security check. If so, working longer also may boost your benefit.

The bottom line It pays to weigh your options carefully before starting Social Security.

Websites with more information 1.usa.gov/L64IWR and 1.usa.gov/wu9f2A