Social Security: The Best and Worst Years To Be Born [View all]

Social Security has a number of quirks related to the way it adjusts for inflation. In a nutshell, your 35-year earnings history is normalized for inflation to your indexing year (the year you turn 60) using the National Average Wage Index. Benefits start at age 62 at the earliest, and from that point forward the Consumer Price Index for Urban Wage Earners and Clerical Workers is used for COLA (a lower percentage on average). From 60 to 62, there is a gap of two years, and no inflation adjustment occurs. Though typically not significant, it can be.

If you were born in 1961, you will miss out on the 5.9% COLA in 2021 and the 8.7% COLA in 2022 for a combined percentage of 15.1%. This is the highest pair of percentages since 1980-1981 and resulted from the inflation bubble. To get that percentage back, you would have to delay your benefits for almost 2 years after your full retirement age of 67.

The best birthyear in the modern era? That would be 1949. Thanks to the Great Recession, COLA was zero in 2009 and 2010, so these fortunate individuals don't effectively have gap years.

Inflation can have a dramatic effect on retirement planning, and this provides a small window into one of its hidden effects.