The ‘Bridge Strategy’ Retirees Use to Maximize Social Security
A strategic approach to Social Security can help your wealth last through retirement. That’s why many retirees use the “bridge strategy” to put off tapping Social Security, filling the gap with retirement savings from their 401(k) and other investment accounts.
Here’s what you need to know about the bridge strategy, and how you can use it to maximize Social Security and minimize taxes.
Understanding the Bridge Strategy
The bridge strategy involves utilizing your savings to cover expenses during the early years of retirement, allowing you to delay claiming Social Security benefits until a later age. By doing so, you can potentially increase your Social Security income and reduce tax liabilities.
Withdrawals from retirement accounts are subject to taxation, except for Roth accounts. However, only up to 85% of Social Security income is taxable, and some states tax retirement account distributions more heavily than Social Security benefits.
Certain retirement accounts have required minimum distributions (RMDs), which can be reduced by making withdrawals once you reach age 59 ½. This can help lower your RMDs in the future, as they are based on a percentage of your account balance.
The bridge strategy is not exclusive to high-income individuals. Even those with modest savings can benefit from delaying Social Security to secure a higher benefit amount.
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The Benefits of Delaying Social Security
You can start receiving Social Security benefits at age 62, but waiting until your full retirement age (between 66 and 67) or even later can significantly boost your monthly payments. For each year you delay beyond full retirement age, your benefit may increase by 8%.
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Determining if the Bridge Strategy is Right for You
The bridge strategy can be beneficial for individuals with sufficient savings to cover expenses while delaying Social Security. It can also be combined with part-time work for additional income and flexibility.
This strategy is particularly advantageous for those with substantial funds in traditional retirement accounts, as it allows for strategic withdrawals before RMDs kick in.
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