Experts Say This Is the Best Way to Boost Your Social Security Benefits

While it may be tempting to start collecting Social Security retirement benefits ASAP—or at age 62—for many people it may actually be more beneficial to wait until you’re full retirement age or later.

“For many retirees, this [delaying] results in a significantly higher guaranteed income stream for life,” said Dave Flegal, a certified financial planner (CFP) and founder of Flegal Financial Planning.

But what do you do while you’re waiting to collect?

Enter: the bridge strategy. With the bridge strategy, you withdraw money from your retirement savings to build a ‘bridge’ that will cover your living expenses until you receive Social Security at full retirement age or later.

“Drawing down retirement savings as a bridge is the most flexible approach. It gives you full control over how and when you access your money,” said Juan G. HernandezAriano, a CFP and principal of WealthCreate. “Done well, it can be very tax-efficient and relatively low-cost.”

Why Should You Use A Bridge Strategy?

It may seem costly to spend down your retirement savings in order to delay collecting Social Security, but depending on how long you live, the benefits could weigh the costs.

A recent Bipartisan Policy Center report found that a medium earner, who makes $66,223 annually, would receive a $1,734 monthly check if they started collecting at age 62.By waiting until age 67, they would earn an even larger monthly benefit: $2,477.

While they would have to draw down $1,734 from their retirement savings every month between the ages of 62 and 67, or $104,035 in total, when using the bridge strategy, they would earn back that amount in increased Social Security benefits in less than 12 years, or by age 79.

In other words, if you expect to live past the age of 79, it could be worth waiting until FRA, or even later to start collecting. Doing so could mean earning hundreds or even thousands of dollars more in the long run.

How To Make a Bridge With Your Retirement Savings

In order to develop an effective strategy, you want to have a clear idea of your spending habits and how much money you’ll need to withdraw to cover that spending.

“We often see people spend more than they should during the bridge window, especially if they don’t have a clear system in place,” said HernandezAriano.

You’ll then want to choose which retirement or brokerage accounts you want to tap—you’ll want to do so strategically, so you don’t inadvertently incur a large tax bill.

“Pull money first from your pretax 401(k) or IRA, but just enough to fill up the lower tax brackets. Get the rest from your taxable brokerage account,” said Alvin Carlos, a CFP and managing partner at District Capital Management.

And if you plan to retire in your early 60s and tap your retirement investments then, you’ll want to start building up these resources well in advance.

“Start planning this strategy early. You’ll need to build both your 401(k) and taxable brokerage account to tide you over during the bridge,” Carlos said.

Annuities & Bonds May Be An Better Alternative

Another option for building the bridge is to purchase an annuity, which is a type of insurance contract where an insurer provides payouts—either as regular payments or a lump sum—in exchange for the premiums you pay the insurer.

“Annuities, as a bridge, can be very helpful when the market feels shaky or when a client is especially risk-averse. They remove some of the emotional stress and can help smooth out retirement income,” HernandezAriano said.

Annuities can provide predictable income for a set number of years, but they can also have a lot of fees—like commission fees, mortality costs, and surrender charges—which can erode your potential return.

But if you’re not interested in purchasing an annuity because they’re too costly or complicated, bonds can be good bridge alternative, too.

“In many cases, using a mix of short/intermediate bonds or bond funds and cash equivalents would make for a low-risk portfolio with a lot lower fees than an annuity,” said Kirk Reagan, a certified financial planner and owner of High Flight Financial.

Ultimately, it’s best to speak with a financial advisor who can help you figure out if you should build your bridge by drawing down your retirement savings or investing in bonds or annuities.

“The answer will likely depend on an individual’s personal situation as well as the interest rate environment and other economic conditions,” said Emerson Sprick, director of retirement and labor policy for the Bipartisan Policy Center.

Continue Working to Delay Collecting

Another way to have enough money to put off claiming retirement until age 70 is to work in your 60s.

“Continuing to earn money beyond age 62 means you can benefit from Social Security’s actuarial adjustments, which increase your monthly benefit amount for each month you hold off claiming, and avoid dipping into your retirement savings or even keep adding to them,” Sprick said.

The Bottom Line

Waiting to collect Social Security benefits until FRA or later is smart strategy that can help you maximize your monthly Social Security benefits, especially if you want to hedge against the risk of outliving your savings. However, you may need a bridge to get there. This could mean drawing down your retirement savings, working, or investing in bonds or annuities.