Social Security as an Inflation Hedge

What we are experiencing now between the markets and inflation brings home the importance of delaying Social Security until age 70. This past month's announcement of an 8.7 percent cost-of-living increase for 2023 underscores the true value that delaying brings to a retirement plan. It's not simply the income payments, but also the strong built-in inflation protection of these payments.

It is very hard to get this protection elsewhere. We have an allocation to Treasury Inflation-Protection Securities (inflation bonds) in client portfolios, but when the bond market has a historic collapse, we find that these securities are bonds first and inflation-protection second.

Stocks and real estate have historically proven to be long-term inflation hedges, but in the short to medium term, a sudden spike in inflation can have a serious negative effect on equity values, falling just as your expenses are increasing.

Social Security is not always about maximizing payments through one's lifetime. Sometimes it's used as a tool to minimize bad outcomes. While you get the inflation protection no matter what age you start collecting, by delaying, the cost of living adjustments are being applied to a higher base income. Even if health issues come into play, be aware that for a 65-year-old couple, there's a 50 percent probability that one of them reaches age 89. That fact isn't taken into consideration by most online calculators.