Anyone who is a few years away from retirement must make many high-stakes decisions. One of the most critical decisions is when to start receiving Social Security benefits.
Social Security is a primary source of retirement income for many Americans, so it makes sense to think about all the possible ways to maximize benefits.
While you’re eligible to start claiming your Social Security benefit at age 62, most financial planning experts advise waiting at least until you reach your full retirement age (FRA), which for people born in 1960 or later is 67. (You can confirm your FRA here.)
When you reach your FRA as defined by the Social Security Administration, you will receive 100% of your benefit; taking it “early,” at age 62, reduces the amount by around 30%.
As financial planning expert Suze Orman writes, “Every year past your FRA until age 70 that you wait, Social Security will add 8% to your benefit. That’s risk-free and fully guaranteed. Wait three years and you will earn a 24% bump in your benefit. Let me be very clear: there is no investment in the world right now that pays you a risk-free 8%.”
Social Security is protected from the most common investment risks
Social Security benefits are in fact risk free, which is why Social Security is often described as a “nearly perfect” source of retirement income. Social Security protects against the most common risks of retirement income: outliving one’s money, making poor investments, and inflation.
However, waiting until age 70 to start receiving the benefit is not appealing to some people.
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“One of the best ways to delay receiving benefits is to earn enough money from working that you don’t need the income from Social Security to pay for your living expenses,” says Steve Vernon, FSA, author of several books on retirement, including Don’t Go Broke in Retirement.
Making the most informed decision about when to start receiving Social Security benefits is crucial to a comfortable retirement.
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How to set up a Social Security bridge
If you’d rather not work, can’t work, or can’t find work, one effective way to delay the start of Social Security benefits is to use a portion of your retirement savings to temporarily substitute the income you’d receive from Social Security. This is what’s known as a Social Security bridge, a generic term rather than an actual financial product.
“A Social Security bridge payment is one of the most strategic ways to use your hard-earned retirement savings,” says Vernon, who is also an actuary and authored several retirement research papers at the Stanford Center on Longevity.
Vernon shares the following example of how a Social Security bridge payment works.
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Let’s say in 2025 you will reach your full retirement age (FRA) — which is 67 for people born in 1960 or later — and your monthly Social Security income will be $1,775. If you delay receiving your benefits until age 70, your monthly benefit would go up to $2,154 per month, a difference of $379 per month.
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To set up a Social Security bridge payment, you’d set aside enough savings to pay yourself that $2,201 a month for 36 months/three years until you turn 70.
With the Social Security bridge payment, you’d receive $2,154 a month for life, paid from your bridge fund — aka your savings — for three years and then get that same amount paid by Social Security for the rest of your life.
By using $61,344 from savings to fund your Social Security bridge payment, you are essentially buying an additional $426 per month or $5,112 per year.
In order to have a reliable bridge payment, “You want to make sure you have some funds that avoid stock market risk,” says Vernon, “such as a CD, money market fund, short-term bond fund or stable value fund in a 401(k) plan.” You can then use any interest earnings to increase your Social Security bridge payment in the years following retirement, he adds.
It takes time and effort to plan a stream of retirement income that will allow you to live the lifestyle you envision. “So many people spend more time shopping for a new car or planning a vacation than they do planning their retirement,” says Vernon.
But if you want to buy that convertible or take that river cruise when you’re retired, you’d be wise to start strategizing sooner rather than later.
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