The inflation-protection benefits of deferred Social Security

The recent rise in inflation rates could have a silver lining for your retirement.

Article published: March 13, 2023

As we continue to experience market volatility, elevated inflation rates and questions about the health of the economy, our advice is the same as it always is in times of uncertainty – focus on what you can control. Deferring when you take Social Security is both something you can control and a strategy that can offer you an inflation-protected retirement income stream.

“The low inflation we saw since the early 1980s was both a blessing and a bit of a curse,” says Vice President of Financial Research, Dr. Wei-Yin Hu.

“Low inflation is great when you’re a consumer, but it lulled us into forgetting that inflation is a big risk. And that risk matters even more once you’re in retirement, where you have fewer ways to adjust if inflation were to spike up again.”

In an effort to help address that risk, in 1972, legislation passed that requires Social Security and Supplemental Security Income benefits to adjust automatically to keep pace with inflation. This cost-of-living adjustment, or COLA, is based on the increase in consumer prices for a variety of household goods and services. If there is a year-to-year increase of at least 0.1%, then benefits are adjusted higher.

“We always considered the automatic inflation adjustment in Social Security to be a key component of the program,” says Dr. Hu.

The most recent COLA was 8.7%, the highest increase in 40 years, which comes on the heels of the 5.9% increase in 2022, which at the time was also the biggest increase in 40 years.


However, in some cases these large increases can offer an opportunity to take advantage of the COLA feature as part of your Social Security claiming strategy.

“Clients often ask if there is anything they can do to get more inflation protection,” says Dr. Hu. “Well, there is. Our advice for most households is to delay taking Social Security, at least for the primary earner in a household, past the age you’re first eligible to take it.”

Often, we suggest delaying Social Security benefits until age 70 as long as you have enough other sources of income to cover your needs and you don’t have reason to think your life expectancy will be shorter than average. “This delaying of benefits provides two advantages. First, you’re likely to get more total benefits over your lifetime. Second, more of your retirement income will be protected against inflation. So, if inflation should rise again 10, 20 or even 30 years in the future, you’ll have that extra comfort level from Social Security,” Dr. Hu concludes.

Decisions regarding Social Security are highly personal and depend on a number of factors such as your health and family longevity, whether you plan to work in retirement, whether you have other income sources as well as your anticipated future financial needs and obligations.