‘Bridge Strategy’ Retirees Use to Increase Social Security
A Social Security strategy can help your wealth last through retirement. That’s why many retirees use the “bridge strategy” to stop tapping Social Security, filling the gap by saving for retirement in their 401(k) and other accounts.
Here’s what you need to know about the bridge strategy, and how you can use it to increase Social Security and reduce taxes.
What is a bridge strategy?
A bridge strategy involves using your savings to cover your early retirement years. That way, you don’t need to claim Social Security when you are able, at age 62, to increase your benefits.
Remember that when you withdraw money from retirement accounts, you will have to pay taxes on that money (except for withdrawals from Roth accounts). But up to 85% of Social Security income is taxable. Many states also distribute tax-deductible retirement accounts rather than Social Security benefits.
Some retirement accounts also come with required minimum distributions (RMDs). Withdrawing from these accounts when you can do so without penalty at age 59 ½ can reduce your required minimum distributions later, since RMDs are based on a percentage of your account balance. RMDs only apply to traditional plans, not Roth accounts.
You don’t have to be rich to use the bridge strategy. Even if you don’t have a multi-million dollar nest egg that needs to be gradually withdrawn to minimize taxes, it can still be beneficial to delay Social Security for a higher benefit.
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Why delay can pay off
You can start receiving Social Security at age 62, and receive your full benefit once you reach your full retirement age (between 66 and 67, depending on when you were born).
For every year you delay receiving Social Security between full retirement age and age 70, your benefit may increase by 8%.
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Is a bridge strategy right for you?
A bridge plan can be a great way to increase your Social Security benefits, but you need enough money in your savings to pull it off.
You can also pair a bridge strategy with a part-time job, which still gives you more flexibility and an additional source of income. A bridge strategy involves the deliberate use of assets that you have accumulated over decades. It’s especially important if you have a lot of money saved in traditional retirement plans. You can cut these account balances before the required minimum distribution applies.
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