The easily overlooked inflation hedge

From Retirement Now Newsletter 2-3-2022

I’m not a 100% all-the-time advocate of delaying Social Security. But for a lot of people it can be a really good decision.

For instance, if the higher earning spouse is older than the lower earning spouse it may be a good benefit for the higher earner to delay until age 70. That’s because their bigger Social Security benefit will last for as long as one of them is still alive. Which will likely be the younger spouse that has a longer life expectancy and hence longer expected time for that bigger Social Security benefit to keep paying and getting collected.

Another thing to consider…

Delaying Social Security can also be a good hedge against inflation.

Which is important during a time of higher inflation.

The last cost of living increase for it was 5.9%. Not bad to help keep up with inflation.

I came across a good article that mentions the strengths of delaying toward the last few paragraphs.

One thing to keep in mind is that Social Security uses mortality tables from the 1980’s. And since life expectancy has increased since then, the payouts can be quite favorable to those with longevity. Consider this quote about women from the article:

“The combined benefit of improved longevity and the high cost of inflation-protected income mean that a healthy woman can receive $180,000 more in expected future lifetime income by delaying from age 62 to age 70.”

Not too bad.

But I think there is a better way to look at it.

Instead of thinking in terms of how many additional dollars may be collected over a 30+ year time horizon, think of it in terms of spending each year, or even each month.

The increased benefit starting 2022 was 5.9%. That increase will help retirees in the here and now to buy the goods they are already purchasing, or at the least allow them to do less cutting back and substituting for cheaper goods.

This in turn will help them to not have to withdraw as much from their investment portfolios just to buy the same goods and services.

Less withdraws from your life savings / investment portfolio means you are less likely to run out of money in retirement.

Why do I think this is a better way to look at the decision of delaying Social Security?

Because no one knows how long they will live. And if they have to beat the life estimates from a 1980’s mortality table in order to collect $180K more in benefits… that’s a lot of hoping and praying for a payoff way down the line.

But if you look at it from the fact that on a yearly or monthly basis the additional inflation protection is helping you make less withdrawals from your investment portfolio, then you can see it’s helping you make your savings last longer. And help you ultimately avoid the main concern most retirees have…

Running out of money in retirement.

Delaying Social Security is an often overlooked way to help overcome inflation. It doesn’t mean it’s right for everyone to do. I did a whole MasterClass Monthly on the topic of Social Security back in September of last year. When it makes sense to delay, when to draw early, and so forth.

I’ll probably re-visit that topic at some point this year in a future MasterClass.

Inflation hedge is just one argument that goes in the direction of delaying. And inflation is also just one of many topics that need to be addressed in a full retirement plan.