‘Bridge’ your way to Social Security

Longer you can hold off, bigger the reward

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, such as retirement funds, 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, 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, says Gal Wettstein, the center’s senior research economist and co-author of the study.

Worth the wait?

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 currently between 66 and 67, typically means settling for a permanently reduced benefit. Delaying beyond full retirement age, by contrast, increases retirement benefits by 8% each year until your benefit maxes out at age 70.

Waiting until age 70 can increase your Social Security checks by at least 76% compared to starting at 62, Wettstein says.

“The higher monthly benefit means you have more guaranteed income, which will last you for the rest of your life,” Wettstein says.

Your Social Security benefits begin earning inflation adjustments starting at age 62, whether you’ve started receiving them or not, according to the Social Security Administration. So next year’s 8.7% cost of living increase is no reason to speed up your application if you’re able to hold off.

Most 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% should wait until age 70, although only about 10% currently do.

Claiming too early will cost the typical worker over $182,000 in lifetime discretionary spending, the economists found.

The average claiming age inched up between 2008 and 2018, from 63.6 to 64.7 for men and from 63.6 to 64.6 for women, according to the Social Security Administration.

Most people still claim their benefits before reaching their full retirement age, which means their benefits are permanently reduced.

The strategizing

Most people don’t much like the idea of giving up big chunks of their savings, Wettstein notes.

His 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.