Waiting until age 70 to claim Social Security benefits instead of age 62 can lead to a 77% increase in monthly payments. However, for many retirees, funding the years before reaching 70 can be a challenge. Fortunately, a financial strategy known as a “bridge strategy” can help ease the wait.
Retirees are eligible to claim Social Security at age 62, but starting benefits earlier results in permanently lower payments. The longer you wait, the higher your monthly benefits will be. Here’s how the math works:
| Age to Claim | Monthly Benefit at Full Retirement Age (67) | Monthly Benefit at Age 62 (30% cut) | Monthly Benefit at Age 70 (77% increase) |
|---|---|---|---|
| 62 | $2,000 | $1,400 | $2,480 |
| 67 (Full) | $2,000 | N/A | N/A |
| 70 | N/A | N/A | $2,480 |
By waiting until age 70, beneficiaries can see a substantial increase in their Social Security payments. However, not everyone can afford to delay, and more than 90% of people claim their benefits early, despite the higher rewards of waiting.
What is a bridge strategy, and how does it work?
A bridge strategy is a financial plan designed to cover your expenses between the time you retire and when your Social Security benefits start at full value. This strategy can take several forms:
- Investment withdrawals: Tapping into your investment portfolio during the interim years before Social Security starts.
- Annuities: Using annuities to secure a steady income stream. Immediate annuities provide instant payouts, while deferred annuities offer payments at a later date.
¿Benefits of a bridge strategy? Here’s how a bridge strategy can help ensure a smooth transition into retirement:
- Protection of assets: By delaying Social Security, you reduce the risk of outliving your retirement savings.
- Higher lifetime benefits: Delaying payments results in higher monthly Social Security checks, which are adjusted for inflation over time.
- Peace of mind: Knowing that you have a plan to fund the interim years can reduce stress and increase confidence in your retirement.
Where to get income during the interim years? Before Social Security kicks in, you need a reliable source of income. Here are a few options retirees may consider:
- Investment portfolio: If you’ve saved enough, using your investments for withdrawals can help bridge the gap.
- Annuities: Immediate or deferred annuities can provide a guaranteed stream of income.
- Part-time work: Some retirees may choose to work part-time to reduce withdrawals from savings or investments.
Each option comes with its own set of pros and cons. For instance, withdrawing from an investment portfolio during a market downturn can deplete funds faster, while annuities require a lump sum payment upfront.
The key to a successful retirement strategy is planning. If you are under 62 and considering delaying your Social Security benefits, start making preparations today. A financial advisor can help you understand your options and create a personalized bridge strategy to maximize your benefits.