For decades, the standard approach to retirement income was straightforward: claim Social Security as early as possible and rely on personal savings to supplement it. In recent years, however, a different strategy has gained traction among financially prepared retirees. Instead of claiming benefits early, they delay Social Security until age 70 to secure a larger and more stable income stream.
This shift reflects a broader emphasis on long-term financial planning. By coordinating withdrawals, taxes, and investment income, retirees aim to increase lifetime benefits while maintaining flexibility in the early years of retirement.
Basics
At the center of this approach is what financial planners often call the “bridge strategy.” Rather than drawing Social Security immediately, retirees rely on their own savings to cover expenses between retirement and age 70.
Social Security benefits increase each year they are delayed beyond full retirement age, typically by about 8 percent annually until age 70. This results in a higher monthly payment that continues for life.
The difference can be illustrated clearly:
| Age Claimed | Monthly Benefit |
|---|---|
| 67 (Full Retirement) | $3,000 |
| 70 | $3,720 |
The increase of $720 per month translates to $8,640 annually. Over time, especially when adjusted for inflation, the cumulative benefit can be substantial.
Growth
Delaying Social Security functions as a form of guaranteed income growth. Unlike market-based investments, the increase in benefits is predictable and backed by government policy.
For retirees who live into their 80s or 90s, the higher monthly payments can result in significantly greater lifetime income. The advantage becomes more pronounced over time, particularly as cost-of-living adjustments apply to a larger base benefit.
This approach is often compared to securing a steady income stream that is not subject to market volatility, which can provide a degree of financial stability in later years.
Funding
The primary requirement for delaying benefits is having sufficient resources to cover early retirement expenses. Retirees typically rely on a combination of:
- Withdrawals from 401(k) or IRA accounts
- Taxable investment portfolios
- Income-generating assets such as dividend-focused funds
Some investors allocate a portion of their portfolios to funds designed to generate consistent income, including dividend ETFs. These can provide supplementary cash flow while allowing other investments to remain positioned for growth.
An additional consideration is the impact on required minimum distributions. By withdrawing from retirement accounts earlier, retirees may reduce the size of those accounts before distributions become mandatory at age 73. This can help manage future taxable income.
Taxes
Tax planning is a critical component of the strategy. Without careful coordination, higher income levels in certain years can lead to increased tax liabilities and additional costs.
One key factor is the income-related monthly adjustment amount, known as IRMAA. This affects Medicare premiums when income exceeds specific thresholds, such as approximately $109,000 for single filers. Even a modest increase in income can result in higher premiums.
Social Security benefits themselves may also be subject to taxation. Depending on total income, up to 85 percent of benefits can be taxable.
These elements can combine to create what financial planners describe as a “tax cascade.” In this situation, additional income from withdrawals or investments can trigger multiple layers of taxation or increased costs.
Couples
For married households, coordinating benefit timing can improve outcomes. A common approach involves one spouse claiming benefits earlier, while the higher-earning spouse delays until age 70.
This strategy provides a balance between immediate income and long-term benefit growth. It also has implications for survivor benefits, as the higher monthly payment continues for the surviving spouse.
By adjusting the timing of claims and withdrawals, couples may also be able to manage annual income levels more effectively and remain below key tax or Medicare thresholds.
Planning
The effectiveness of delaying Social Security depends on careful execution. Retirees must evaluate multiple factors, including life expectancy, spending needs, tax exposure, and investment performance.
Financial modeling is often used to project different scenarios and identify the most sustainable approach. Without this level of planning, the benefits of delaying may be reduced by unintended tax consequences or inefficient withdrawal strategies.
Despite its association with higher-income households, the strategy is not limited to the wealthy. Individuals with adequate savings and a long-term perspective may also benefit from delaying benefits, provided they can manage the interim period effectively.
Ultimately, the approach offers a structured way to increase guaranteed income in later retirement. For those who prioritize stability and are able to plan accordingly, delaying Social Security can play a central role in building a more predictable financial future.
FAQs
What is the bridge strategy?
Using savings while delaying SS to age 70.
Why delay Social Security?
To increase monthly lifetime benefits.
Does delaying reduce taxes?
It can help manage future tax exposure.
What is IRMAA?
A surcharge on Medicare premiums.
