Recent estimates show that Social Security recipients could receive a larger-than-usual cost-of-living adjustment (COLA) in 2027. But seniors — including homeowners seeking to tap their home equity through products like reverse mortgages — may want to rethink their strategy for claiming benefits.
The Senior Citizens League recently projected that program benefits could rise 3.6% in 2027, which would be the largest increase in four years. The official adjustment will be announced Oct. 14 based on inflation data from July through September.
The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) was up 3.4% year over year in July, prompting the senior advocacy organization to up its estimates as inflation is expected to rise modestly in the next two months. The 3.6% COLA, if it comes to fruition, would raise the average Social Security benefit by $69.75, pushing it to roughly $2,007.
But an article published Thursday by CNBC explains that most Americans are better off waiting to claim Social Security, even when the cost-of-living adjustment is relatively high.
Social Security recipients got a 2.8% bump in 2026, but a 3.6% increase next year would be the largest since the hikes of 5.9% in 2022 and 8.7% in 2023. A larger cost-of-living increase could tempt seniors to claim benefits sooner so they don’t miss out on additional benefits, but experts that spoke to CNBC said that concern is largely misguided.
“You need to protect yourself against living a long life, and you don’t want to have regret,” James Mahaney, a South Carolina-based certified financial planner told CNBC. “Social Security is your best tool to get there.”
Mahaney published a research paper in which he compared two hypothetical beneficiaries. One begins claiming at age 62 in 2016 and the other begins at age 70 in 2024. The analysis uses historical cost-of-living increases for 2017 through 2026 while assuming a flat 2.5% increase for future years.
Base benefits grow for each year a person delays their payments past the age of 62. A typical senior could get $2,250 per month if they claim at 62, but that rises to $3,000 a month if they wait until the full retirement age (67 for people born in 1960 or later) and to $3,960 per month at age 70.
Waiting an additionally eight years to claim benefits equates to payments that are 76% higher, Mahaney’s research shows. But along with the base benefits, the annual COLAs provide an additional boost. With these included, the benefits for the hypothetical beneficiaries grow from $2,250 per month at 62 to $3,205 at 66 and $5,091 at 70.
In other words, an eight-year wait pays off in the form of benefits that are 126% higher.
Retirement income strategy
This could form the basis for a stronger retirement income strategy for senior clients working with reverse mortgage originators and financial planners. For borrowers who want to tap a Home Equity Conversion Mortgage (HECM) or proprietary product line of credit, they could have less urgency to draw on the loan proceeds later in life if they’ll be receiving additional Social Security benefits.
While today’s higher interest rates can be an obstacle for a borrower, since they cut into the available proceeds at origination, they can also serve as a benefit down the road. Unused portions of an adjustable-rate HECM line of credit, for instance, grow over time at a pace that’s tied to the interest rate and the annual mortgage insurance premium.
Since the line-of-credit growth is reliant on interest rates, available proceeds can grow faster when rates are higher — and conversely, more slowly when rates are lower. But any balances will grow more quickly as rates rise, a factor that could influence whether a borrower chooses to make payments.
Importantly, Social Security benefits could be impacted if the trust fund becomes insolvent in the early 2030s, with projections of 24% cuts for all recipients if nothing is done. Wealthier clients may also see their benefits capped at $100,000 per year if a proposal aimed at addressing insolvency becomes reality.
Still, the message from financial planners, according to CNBC, is that seniors in good health should strive to delay Social Security claims for as long as possible. Focusing on COLAs shouldn’t drive their decisions and seniors should model the proceeds they’ll receive at different ages. Ultimately, the reliance on Social Security as part of a retirement income strategy will vary by the individual.
“The reality for most clients is, it really depends on where they are in the wealth spectrum,” Ryan Ponsford, a financial adviser at Equity Wealth Strategies, told HousingWire‘s Reverse Mortgage Daily earlier this year. “For some people, Social Security is a big piece of retirement. For other people, it’s not. With most of the people that I’ve planned for over the years, they say, ‘Design me a plan where I’ll be OK regardless of what happens to Social Security.’”