‘Bridge’ your way to Social Security
Delaying the start of Social Security benefits is a powerful way for retirees to cope with inflation, survive bad investment markets and reduce the risk they’ll run short of money. The advantages of waiting are so great that financial planners often recommend their clients tap other savings to help them delay claiming.
Employers could increase their workers’ financial security by offering a similar “bridge” strategy as part of 401(k)s and other workplace retirement plans, according to a study by the Center for Retirement Research at Boston College. The bridge strategy would tap a worker’s retirement account to pay amounts roughly equal to the foregone Social Security checks.
People can create such bridges on their own, of course. If Social Security projects your benefit at age 62 will be $1,500 a month, for example, you could set up automatic monthly withdrawals of that amount from your 401(k) at retirement. But having an employer offer the option could make the process easier and encourage more people to delay, said Gal Wettstein, the center’s senior research economist and co-author of the study.
Benefits of waiting are huge
Social Security benefits are incredibly valuable to retirees. Benefits are adjusted annually for inflation and, unlike retirement savings, can’t be depleted by bad markets, bad investing decisions or bad luck.
People can claim Social Security retirement benefits at any time from ages 62 to 70. Starting before your full retirement age, which is between 66 and 67, typically means settling for a permanently reduced benefit. Delaying beyond full retirement age, by contrast, increases benefits by 8 percent each year until your benefit maxes out at age 70.
Waiting until 70 can increase your Social Security checks by at least 76 percent compared to starting at 62, Wettstein said.
“The higher monthly benefit means you have more guaranteed income, which will last you for the rest of your life.”
(By the way: Your Social Security benefits begin earning inflation adjustments starting at age 62, whether you’ve started receiving them, according to the Social Security Administration. So next year’s 8.7 percent cost of living increase is no reason to speed up your application.)
Most still claim too early
Copious research has shown that most people are better off waiting to claim Social Security. It’s particularly important for the higher earner in a married couple to delay, since that benefit determines what the survivor gets after the first spouse dies.
A study by economists from the Federal Reserve and Boston University found that virtually all U.S. workers ages 45 to 62 should wait beyond age 65 to claim, and 90 percent should wait until age 70, although only about 10 percent do.
Few help with strategies
Many employers provide matches to encourage people to accumulate money for retirement, but few help with payout strategies when it’s time to retire, Wettstein said. A few offer the option to annuitize, which means turning some or all of the account balance over to an insurance company in exchange for a guaranteed stream of payments.
The study presented an alternative — the employer-provided bridge — to a nationally representative sample of 1,349 people ages 50 to 65 who had not retired and who had at least $25,000 in their 401(k). The strategy would allow participants to use up to half of their retirement account balances to replace Social Security checks while they delayed claiming.
A substantial minority said they would use the strategy if offered, the researchers found. And 27 percent of those who were given a brief description of how it worked said they would use it. The percentage willing to use the strategy rose as participants were given more information, with 35 percent of those given the most complete explanation saying they would use it. In addition, 31 percent said they wouldn’t opt out if their employer made the bridge strategy the default option.
Figuring out when to claim Social Security is daunting enough for the average worker, let alone deciding how and when to tap retirement funds, he said. An employer-provided bridge strategy could make waiting easier for many.