COLA + 1: How Cost of Living Adjustments Affect Spousal and Survivors Benefits

A financial advisor was helping a client couple understand spousal benefits and the effects of the annual cost-of-living adjustment (COLA).

In this case, the husband, Jack, had filed for Social Security benefits ten years earlier upon reaching his full retirement age (FRA). Thanks to annual COLAs, his initial monthly benefit of $2,000 had grown to $3,000.

His wife, Jean, is significantly younger and is only reaching her FRA this year. She has a limited earnings history, so she will file for a spousal benefit rather than a benefit based on her work record.

The advisor’s question was: Will Jean’s 50% spousal benefit be based on Jack’s current monthly benefit, including COLA, or his primary insurance amount (PIA), calculated upon his retirement a decade earlier?

Calculating COLA on Social Security Spousal Benefits

According to the Social Security Administration, Jean is entitled to 50% of Jack’s current benefit. Here’s the breakdown:

• Jack’s current benefit: $3,000 (after COLA adjustments)
• Jean’s spousal benefit: 50% of $3,000 = $1,500

Further, Jean’s spousal benefit will be adjusted annually whenever inflation triggers a COLA. Find more answers to COLA questions in this article.

It’s worth noting that for anyone who plans to file for a spousal benefit, their FRA is the age at which their benefit tops off.

Social Security COLA Considerations for Couples with Age Differences

Understanding COLA is essential for couples of all ages and particularly for spouses with significant age differences.

Typical life span projections mean the younger spouse could outlive the older spouse by many years. The survivor wants to be sure their benefits and other savings will support them after they are widowed.

A surviving spouse is entitled to a deceased spouse’s Social Security benefit, including COLAs, provided they have reached their FRA. If they are younger than their FRA, the survivor is subject to an earnings limit. See this SSA publication on survivors benefits for more information.

Some spouses may be tempted to claim benefits before they reach their FRA, but that reduces their spousal benefit accordingly. That reduction is permanent, with possible consequences for long-term financial security.

Financial advisors use a tool like LifeYield Social Security+ to model different claiming scenarios for clients, both individuals and couples. The tool allows advisors to show how claiming ages and strategies affect lifetime benefits and can help launch deeper discussions about retirement savings and income.