Use your retirement account as a ‘bridge’ to Social Security

Financial Planners

Delaying the start of Social Security benefits is a powerful way for retirees to combat inflation, weather bad investment markets, and reduce the risk of running out of money. The benefits of waiting are so great that financial her planners often encourage clients to leverage other savings, such as retirement benefits, to help delay billing.

A study by Boston College’s Center for Retirement Research found that employers can increase employee financial security by offering similar “bridge” strategies as part of 401(k) and other workplace retirement plans. can. A bridge strategy would use a worker’s retirement account to pay roughly the same amount as a forgotten Social Security check.

Of course, people can build such bridges themselves. For example, if Social Security projects $1,500 a month in benefits for her at age 62, he could set up a monthly automatic withdrawal of that amount from his 401(k) when he retires. But having employers offer options could make the process easier and encourage more people to procrastinate, says a senior research economist at the center and a co-author of the study. Author Gal Wetstein said:

Advantages of significant delay

Social Security benefits are incredibly valuable. The benefits are adjusted annually for inflation and, unlike retirement savings, are not depleted by bad markets, bad investment decisions, or bad luck.

People can claim Social Security retirement benefits anytime between the ages of 62 and 70. Starting before full retirement age, from when he’s 66 to when he’s 67 now, usually means settling on permanently reduced benefits. In contrast, delaying beyond full retirement age increases retirement benefits by 8% each year until he maxes out at age 70.

Waiting until age 70 could increase Social Security checks by at least 76% compared to starting at age 62, Wetstein said.

“Higher monthly benefits mean more guaranteed income, which will last for the rest of your life,” Wettstein said.

Few people wait to claim their profits

Numerous studies show that most people are better off waiting for Social Security claims. Deferring is especially important for high-income couples, as their benefits determine what survivors get after the death of their first spouse.

A study by the Federal Reserve and economists at Boston University found that “virtually all” U.S. workers between the ages of 45 and 62 should wait to claim after age 65, with 90% should wait until age 70, but currently only about 10% do so. Economists have found that premature billing costs a typical worker more than $182,000 in lifetime discretionary spending.

According to the Social Security Administration, the average billing age rose modestly from 2008 to 2018, from 63.6 to 64.7 for men and from 63.6 to 64.6 for women. Most people still claim benefits before reaching full retirement age.

Little help from employer

Many employers offer Matches to encourage people to save for retirement, but few support payment strategies. We offer annuity options, which means handing over part or all of your account balance to your insurance company.

Most people don’t really like the idea of ​​giving up most of their savings, Wettstein said. His study shows that he is not retired and has at least $25,000 in a 401(k) He is 50 to He is 65 For a nationally representative sample He is 1,349 , offered an alternative, an employer-provided bridge. This strategy allows participants to substitute up to half of their retirement account balance for Social Security checks while deferring claims.

Researchers found that a “significant minority” said they would use the strategy if offered. About 27% of those given a brief description of how it works said they would use it. As participants were given more information, the percentage willing to use the strategy increased, with 35% of him who was given the most complete description saying he would use it. Additionally, 31% said they would not opt ​​out if their employer made the bridge strategy their default option.

Wettstein says, to his knowledge, no employer offers a bridging strategy, but hopes the research will encourage some to consider it. Determining when to claim coverage, let alone deciding when and how to use retirement money, is very difficult, he said.

The survey was conducted online by NORC at the University of Chicago in July 2021.


Liz Weston, a certified financial planner, is a columnist for NerdWallet.

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