The average Social Security check is set to jump about $147 next year, thanks to a historic 8.7% cost-of-living adjustment (COLA). That's exciting news for seniors already claiming benefits, but it poses a question for those who are eligible but haven't signed up yet: Should they claim before the end of the year so they too can enjoy a sizable benefit boost in 2023?

The answer depends a lot on your personal situation. Here's what you need to know in order to make the right call.

Serious couple looking at document together.

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How the government applies the COLA to Social Security benefits

When you apply for Social Security for the first time, the government calculates your primary insurance amount (PIA). It does this by looking at your average monthly earnings over your 35 highest-earning years, adjusted for inflation. This is known as your average indexed monthly earnings (AIME).

The government takes your AIME and puts it into the benefit formula in effect for the year you turn 62. For those born in 1960, the benefit formula is as follows:

  1. Multiply the first $1,024 of your AIME by 90%.
  2. Multiply any amount between $1,024 and $6,172 by 32%.
  3. Multiply any amount over $6,172 by 15%.
  4. Total the results from steps 1 to 3 above and round down to the nearest $0.10.

The formula for other years is pretty similar. The only thing that changes are the bend points -- $1,024 and $6,172 in the example above. The Social Security Administration maintains a list of bend points for all previous years.

The results of this formula tell you how much you'll get at your full retirement age (FRA). That's anywhere from 66 to 67 for today's workers, depending on your birth year. This is what the government adds the 8.7% COLA to for 2023, and it happens no matter when you claim. Whether you sign up in 2022 or wait until 2023 or beyond, you're not going to miss out on that benefit boost.

When you sign up still matters, though

Signing up in 2022 could be a smart choice for some, but it's more to do with their FRAs and their personal situations than the 8.7% COLA. If you follow the steps discussed above, you'll know what kind of a benefit you can expect at your FRA. But if you choose not to sign up at that age, there's an extra step in your benefit calculation.

Claiming under your FRA shrinks your benefit by the following amounts:

  • 5/9 of 1% per month up to 36 months
  • 5/12 of 1% per month for any additional months if claiming more than 36 months early

For those who sign up right away at 62, that means a 25% reduction if your FRA is 66 or a 30% reduction if your FRA is 67.

On the other hand, you can delay benefits past your FRA and they'll grow by two-thirds of 1% per month until you reach your maximum benefit at 70. That gives you an extra 24% per month if your FRA is 67, or 32% if your FRA is 66.

The best claiming age often comes down to your life expectancy and your financial situation. Claiming early often makes sense if you have a terminal illness or if you're struggling to pay your bills without Social Security. But for those who live into their 80s or beyond, signing up early could mean settling for a smaller lifetime benefit. Delaying benefits could give you more money overall, but you need to be comfortable paying for all your living expenses on your own until you're ready to sign up. 

This is what you should be focusing on when deciding whether to sign up for Social Security before 2023. Either way, you'll get your COLA, but the choice you make could have far-reaching consequences for your retirement finances. 

If you need help figuring out your estimated benefit at various starting ages, create a my Social Security account. There's a calculator there that can estimate your benefit at every month between 62 and 70. Weigh all your options before deciding how to proceed. This shouldn't take long, and even if you decide to claim before 2023, you'll still have plenty of time left to do so.