One of the most important decisions retirees make is when to file for Social Security retirement benefits. You can do so as early as age 62, but you’re almost always better off waiting as long as possible to ensure a higher monthly check — ideally, until age 70, when you get the highest possible payment. The problem is that most people want to retire well before that, according to the Center for Retirement Research at Boston College.
There is a solution, however. You can retire without immediately signing up for Social Security and still get a monthly payment by withdrawing money from your 401(k) or other retirement account. The idea is to withdraw an amount equivalent to your expected Social Security benefit. This allows you to get the same amount of monthly income you would have received from Social Security — except you are not getting it from Social Security.
They call this the “bridge method” because it provides a bridge to a bigger Social Security check when you finally do sign up for benefits a few years down the road.
This is considered a viable alternative to signing up for Social Security too early and sacrificing a lot of money in lost benefits. The program is essentially designed to pay you for delaying your claim because the longer you wait to collect benefits, the higher your Social Security payment. Claiming benefits at age 62 means you will get the smallest possible check.
When you reach full retirement age you get the full benefits due based on the Social Security payroll taxes you contributed while working. The highest payment comes when you file at age 70, after which there is no more financial advantage to waiting.
Waiting until you are 70 years old to claim Social Security could boost your finances by more than $182,000, according to a recent study conducted by David Altig of the Federal Reserve Bank of Atlanta, Laurence Kotlikoff of Boston University and Victor Yifan Ye, a research scientist at Opendoor Technologies.
Research conducted by CRR aimed to find out how receptive older workers might be to the bridge method. Researchers randomly assigned workers between the ages of 50 and 65 to one of four groups. Each group was presented with the same choice of whether to use the bridge method, though the choice was described differently for each group.
Regardless of the group, the share of participants willing to consider the strategy fell within a range of 27% to 35%. That was considered a “noteworthy” percentage because the survey was “likely the first time the respondents would have encountered the idea of drawing down their 401(k)s to postpone claiming Social Security,” CRR researchers said.
As Forbes noted in a recent article, the bridge method allows your Social Security payment to continue to grow 8% year over year, which is how much you gain every year by waiting. The key is that you don’t take more money from your IRA or 401(k) than your expected Social Security benefit, which you can calculate by setting up a my Social Security account.
Of course, this only works for people who have the retirement savings to spare. It is not a recommended solution for those with small 401(k) balances. In that case, you’re better off working as long as possible to build up your nest egg and avoid having to claim Social Security early.
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