Inflation Shows Why it Pays to Delay

IRA, Retirement, Roth, Roth IRA, Social Security

October 20, 2022

The high rate of inflation we are experiencing right now makes a case for why Social Security is so valuable. And it makes a case for why it can be so very smart to figure out a way to delay when you start to receive your benefit.

A recent Gallup survey reported that more than half of current retirees report Social Security as a major source of income for their household. And one of the most vital aspects of Social Security is that monthly benefits are adjusted to keep pace with inflation.

The inflation adjustment for 2023 was just announced. Benefits for 2023 will be 8.7% higher, that’s the single biggest cost-of-living adjustment (COLA) in more than four decades.

For someone who receives $1,500 a month this year, that means their 2023 benefit will be increased by $130. The monthly increase for someone with a $2,000 benefit this year will be nearly $175. That is going to be a big help in dealing with rising food costs, and other essentials where price hikes have been painful.

Why it Pays to Delay Starting Social Security

You know I think it can be a great move to delay when you take Social Security. Your Full Retirement Age (FRA) is when you are eligible to receive 100% of your earned benefit. For most workers today their FRA is age 67. But you can start as early as age 62. Yet if you claim before your FRA, your benefit will be less than the 100% you’re entitled to at your FRA.

As an example, if you’re entitled to a $1,500 benefit at your full FRA of 67, you would get 30% less—$1,050—if you chose to start at age 62. If you start at 63 you would get slightly more. Wait until 64 and you’ll get even more than at 63. But it is only if you wait until age 67 that you are eligible for 100% of your earned benefit.

The COLA makes waiting even more valuable. It’s important to know that every year between the age of 62 and your FRA (67 in this discussion) your account will be credited for the COLA amount, even if you have yet to claim. That means the longer you delay, not only are you becoming eligible for a larger benefit, but that larger benefit is being adjusted for inflation.

If you anticipate Social Security will be a significant source of income for you in retirement, I hope you see what a win it will be to wait until your FRA to start taking your benefit. That doesn’t necessarily mean you must work full-time until age 67 if you don’t want to. Or can’t. Maybe you can work part-time to make just enough to cover what you aren’t getting from Social Security. Or perhaps you tap IRA and 401k savings during the years you are delaying your Social Security start date.

Even Better: Waiting All the Way to Age 70

If you are in good health today, waiting until age 70 to start Social Security will earn you the biggest payout. Between your FRA and age 70, Social Security guarantees you an 8% bonus each year. That means if your FRA is 67, and you wait until age 70 to start your benefit will be 24% higher (8% for three years) than your age 67 benefit. If you believe there is a good chance you could live into your late 80s and into your 90s, that makes considering delaying Social Security to age 70 even more valuable. And you will also continue to get the COLA credited to your account as well.

That sets you up for the biggest possible benefit. Which is extra important for the highest earner in a household to consider. When a spouse dies, the survivor is entitled to collect one benefit: theirs or the benefit of the deceased spouse. By having the highest earner delay as long as possible you are setting up the survivor to be able to claim the largest possible benefit.

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