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.)
Actually, most financial advisors advise waiting even longer than your FRA, ideally until age 70. That is the age at which you will bring home the maximum amount you’re entitled to.
Still many people don’t want to wait until they are truly “elderly” to start drawing their benefits. There is one option that can allow retirees to delay the start of Social Security benefits, but it’s not for everyone.
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How Social Security bridge payments work
If you’d rather not work, can’t work, or can’t find work, one effective way to delay the start of your 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 essentially a payment you make to yourself by accessing your other forms of retirement savings.
Related: What is a Social Security bridge and do you need one?
“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 academic papers during the years he spent as a researcher at the Stanford Center on Longevity.
For much of his career, Vernon also advised large corporations on how to design and manage their employee retirement programs. His work now is focused on helping individual retirees make their “retirement paychecks” last.
A Social Security bridge payment can help retirees maximize their retirement savings and enjoy a fulfilling lifestyle in retirement.
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The pros of Social Security bridge payments
Vernon has academic support in his endorsement of the Social Security bridge.
As the analysts at The New School’s Schwartz Center for Economic Analysis note, the current Social Security system penalizes people who claim their benefits before age 70. They write, “Over one-fifth of eligible people claim before their full retirement age … and over 90 percent claim before the maximum age of 70, resulting in reduced monthly benefits.” And the payments stay at the reduced amount forever.
Some people claim their benefits out of financial necessity — after all the monthly cost of living far outpaces the average Social Security benefit — but financial advisors often recommend to those with retirement savings to spend down their savings before tapping into Social Security to increase their lifetime monthly benefit. Of course not everyone has a financial advisor to make such a recommendation.
Related: Suze Orman delivers blunt advice on delaying Social Security benefits
That’s one reason The New School experts advocate for an official Social Security bridge program, writing:
A formalized, well-promoted, accessible, and easy to understand Social Security Bridge option could help workers delay their claims and thereby secure higher lifetime benefits and greater economic stability in old age. While this bridge is not relevant for the financial fragility of all retirees in the U.S., it provides an important mechanism for millions of Americans to optimize their Social Security benefits — helping to ensure a sustainable income during their retirement and freeing them and their spouses from the common and harmful worry of outliving their retirement savings.
The cons of Social Security bridge payments
Of course, no retirement income generator (RIG) is without risk — Social Security being an exception — and there are some downsides to taking Social Security bridge payments.
Consider:
In order to opt for bridge payments, you must have IRAs, Thrift Savings Plans, Keogh accounts or 401k(b) accounts. Being able to access retirement funds to serve as a bridge assumes you have a 401k(b) or IRA. Not everyone does. You must consider the tax implications of a social security bridge payment. Depending on what type of retirement accounts you have, taking bridge payments from a 401k(b) or traditional IRA may require you to pay taxes. If you are drawing your bridge payments from Roth IRAs, then you funded them with after-tax money and may avoid tax implications. According to analysts at The New School’s Schwartz Center for Economic Analysis, most individual retirement savings are held in tax-advantaged accounts like 401(k)s, traditional IRAs, Keogh accounts, and Thrift Savings Plans, which allow the account holder or their employer to contribute pre-tax money. These funds are only taxed at the time of withdrawal. You lose out on compounded interest. When you take money out of your retirement savings accounts, that means the money will not grow any more. You must make a calculated risk related to your life expectancy. No one has a Magic 8-ball that tells them how long they will live. In order for a bridge payment to “pay off,” you have to live long enough to meet your break-even point.
Making decisions about how to set up appropriate RIGs is complicated and if a Social Security bridge payment lets you delay receiving your Social Security benefits until at least your full-retirement age, it’s a good thing says personal finance guru Suze Orman.
As Orman puts it: “From a financial standpoint, if you do live a long life, waiting as long as possible to start collecting Social Security will pay off with higher lifetime benefits.”
Related: Veteran fund manager issues dire S&P 500 warning for 2025
