Key Takeaways:
- For anyone born in 1960 or later, claiming at 62 cuts your monthly benefit by 30%, while waiting until 70 raises it about 24% above the age-67 amount.
- The bridge strategy uses retirement savings to cover living expenses while you delay Social Security to maximize the eventual benefit.
- In the example, waiting until 70 raises the monthly benefit from $1,750 to $3,100 and cuts monthly withdrawals from savings to $1,400.
- The years between retirement and claiming may be a window for Roth conversions at potentially lower tax rates, which can reduce future required withdrawals and the portion of Social Security taxed.
- The strategy works best with good health, a long expected retirement, and enough savings to cover the gap. Claiming earlier may make more sense with serious health concerns or limited savings.
Could Delaying Social Security Boost Your Retirement Income?
Deciding when to claim Social Security is a major decision you will have to make in retirement. You can start collecting benefits at 62, but the age you choose affects your monthly payments for the rest of your life. Waiting longer can significantly increase the amount you receive.
Of course, delaying Social Security may not always be the best option, especially for someone who’s already stopped working. Enter the Social Security bridge strategy. This allows you to use retirement savings to cover your expenses while delaying Social Security to maximize the eventual benefit. Here’s how it works.
How Claiming Ages Work
For anyone born in 1960 or later, full retirement age is 67. Claiming Social Security at age 62 reduces your monthly payments by 30%. Delay until age 70 and it increases your benefit by about 24% compared to claiming at age 67. Compared with claiming at age 62, that’s roughly 77% more every month.
What the Bridge Strategy Does
With the Social Security bridge strategy, you withdraw money from retirement savings to cover living expenses until you claim Social Security benefits.
For example, if you retire at 62 with $900,000 in savings and need $4,500 per month to cover living expenses, you could collect $1,750 per month from Social Security at 62 or wait until 70 to receive $3,100.
If you claim at 62, Social Security covers $1,750 of your monthly expenses, leaving you to withdraw $2,750 from savings, or $33,000 per year.
With the bridge strategy, you delay Social Security until 70 and use your savings to cover the full $4,500 annually. Your savings will decrease during those eight years, but once you turn 70, your Social Security benefit increases to $3,100 per month. That leaves just $1,400 per month to withdraw from savings once you turn 70.
The Roth Conversion Opportunity
The years between retirement and claiming Social Security may present an opportunity to convert traditional IRA funds into a Roth IRA.
You’ll pay income taxes now on the amount converted, at potentially lower rates. Later, you’ll have smaller required withdrawals and less of your Social Security taxed. The goal is to pay lower taxes now rather than paying potentially higher taxes later. However, conversions raise your income and affect your tax bracket, so plan carefully.
Is the Bridge Strategy Right for You?
The bridge strategy works best for people who are in good health, expect a long retirement, and have enough savings to cover the gap comfortably.
It can also benefit married couples. The lower earner can claim early while the higher earner waits. As for survivor benefits, if the higher-earning spouse delays claiming, the larger benefit may provide greater financial protection for the surviving spouse.
However, claiming earlier may make more sense if you have serious health concerns, limited savings, or need Social Security to cover essential expenses. Certain life events may also impact whether the bridge strategy could be right for you, such as a divorce or a job loss close to retirement.
Putting the Bridge Strategy into Practice
Before deciding, compare your estimated benefits at different claiming ages. You can do this by logging in at ssa.gov and checking your Social Security statement.
Next, figure out how much you’ll need to withdraw from savings during the bridge years. Don’t forget to include taxes, healthcare costs, inflation, and unexpected expenses.
Decide which accounts to tap first and whether a Roth conversion could work for you. Here’s where a tax professional can help you determine how much you can convert before hitting a higher tax bracket.
The bridge strategy won’t make sense for everyone, but if you can afford to tap into savings during the bridge years, it may be one of the best ways to help raise your retirement income.
