Social Security retirement benefits can be claimed starting at age 62, but those who can delay their claims until age 70 will see the highest benefits. This creates a dilemma for many retirees: how to support themselves during those years while waiting for the larger benefit checks.
For some, working longer could be a viable choice, while others might consider self-funding that interim period if they have the means.
Having a “bridge strategy” can help safeguard retirement savings and manage the risks of living longer than anticipated. A report from the Bipartisan Policy Center emphasizes this approach.
Experts believe that delaying Social Security generally results in greater benefits. “Social Security offers a reliable income stream that adjusts for inflation as long as you live,” noted an expert from the Bipartisan Policy Center, highlighting its unmatched value.
While retirees can apply for Social Security at 62, that choice comes with reduced monthly payments. Waiting until the full retirement age, which usually falls between 66 and 67 depending on birth date, allows individuals to receive their full earned benefits.
Moreover, deferring benefits to age 70 can increase their payments by about 8% for each year they wait. Nevertheless, many folks end up claiming benefits before reaching that ideal age; about 90% would benefit from waiting until 70, yet only 10% actually do, according to a report from the National Bureau of Economic Research.
Recent data indicates a rise in early Social Security claims, particularly at age 62, possibly due to growing awareness and eligibility factors. The Urban Institute suggests several reasons for this trend, including increased communication about changes in the Social Security system.
However, claiming early results in substantial cuts to benefits. For instance, a person eligible for $2,000 monthly at age 67 would see that figure drop to $1,400 if they claimed at 62. Conversely, if they waited until 70, their payment could rise to $2,480—an increase of 77%.
Delaying Social Security benefits usually enables most Americans to receive more from the program than if they had claimed early, according to insights from the Bipartisan Policy Center. Not only does this approach help accumulate wealth, it also secures inflation-adjusted monthly benefits for those who live longer than expected.
However, not everyone can afford to wait; there are circumstances where an early claim might be more sensible, especially for those in good health. For those who want to delay, a bridge strategy might be beneficial, allowing them to fund their living expenses while postponing their Social Security claims.
Other retirement studies support bridge strategies as a way to maximize Social Security benefits. Ideally, this means postponing claims until 70, letting retirees maintain their investment portfolios while delaying benefit reception.
If, however, retirees withdraw from their portfolios early, they risk exhausting their funds over a long retirement, ultimately reducing what they can pass on to heirs.
Future retirees might consider withdrawing from their investment portfolios as part of a bridge strategy. This decision involves ongoing considerations regarding how much to withdraw, especially since market conditions can impact the portfolio’s growth.
Another option could be pension plans, although these also have their downsides. Generally, pensions require individuals to give up a lump-sum amount for a steady income stream, which can be challenging for some.
The Bipartisan Policy Center indicates that immediate annuities—those that provide a fixed income for a defined period—can serve as an effective bridge strategy. However, the effectiveness of such plans may depend on interest rates at the time of purchase.
Furthermore, pensions offering payments linked to interest rates can provide alternative income sources, but risks are associated with the market’s status between the purchase and start dates of those payments. The key, according to experts, is to carefully strategize a bridge plan before reaching age 62.
A good financial advisor can be invaluable in navigating retirement income options provided by employers.
