How Rising Prices Affect the Decision to Claim Social Security

Social Security benefits are adjusted each year for inflation through a cost-of-living adjustment, or COLA. At the same time, higher prices for goods and services can lead some people to start collecting benefits sooner than they originally planned.

That leaves retirees weighing a difficult trade-off: taking Social Security earlier for immediate help with rising costs, or waiting longer to secure larger monthly payments later.

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Social Security and inflation

Inflation affects everyday expenses, from eggs and coffee to gas and utility bills. To help benefits keep pace, Social Security gets an annual COLA boost. In one recent year, the administration raised benefits by 2.8%.

People can begin claiming Social Security as early as age 62, while the highest monthly retirement benefit is available at age 70. Many workers delay claiming by relying on wages, retirement accounts and other assets so they can lock in a larger benefit later. But when inflation stays elevated, that delay can become harder to manage. Housing, groceries, insurance and medical bills may keep climbing, and retirees whose savings fall behind may decide to file early.

Even so, waiting can be worthwhile because higher benefits continue to receive inflation adjustments over time.

Why waiting can matter even more when prices rise

Claiming before full retirement age locks in a permanently lower monthly benefit. By contrast, delayed retirement credits keep increasing your payment each month you postpone claiming, even after full retirement age, until those credits stop at age 70.

That larger base benefit can also mean a bigger dollar increase when COLA is applied. A 2.8% raise adds more to a $4,000 monthly benefit than it does to a $3,000 one.

Delaying is not the right choice for everyone, however. People with a family history of health problems or shorter life expectancies may prefer to claim sooner, since they may not live long enough to reach the breakeven point, when delayed claiming starts to pay off compared with starting earlier. For those who live into their 80s or 90s, waiting until 70 can be especially valuable.

Delaying until 70 may also make sense for the higher-earning spouse in a marriage. Survivor benefits are based on either the survivor’s own benefit or the deceased spouse’s benefit, whichever is higher. A larger benefit at 70 can give a spouse more financial protection if the higher earner dies first.

Inflation can also prompt earlier claiming

A common strategy for delaying Social Security is to use savings and retirement accounts such as 401(k)s and individual retirement accounts, or IRAs, to cover living costs in the meantime. But inflation can make that approach more difficult.

When prices rise quickly, savings may be depleted faster, pushing some retirees to claim benefits before age 70. Others manage to delay, but with so little left in reserve that they have little room for unexpected expenses. Drawing down a portfolio during weak market periods can also make it harder for investments to recover.

Before deciding when to claim, retirees should look closely at whether their current income is enough to cover expenses and how quickly they are using up savings.