Retirees Who Do This Before Claiming Social Security End up With Bigger Checks for Life

Spending some of your savings sooner might sound like the last thing you want to do in retirement. In the right situation, though, it can help you lock in a bigger Social Security check every month for the rest of your life.

The strategy is to use savings to cover part of your expenses while you give Social Security more time to grow. It is a different way to think about your retirement plan, and the payoff can be hundreds of extra dollars in every monthly check later on. Here's what to know.

How the bridge strategy works

Waiting to claim Social Security after full retirement age can add about 8% to your benefit for each year you hold off, up to age 70. So if you are due $2,000 a month at 67, waiting three more years could bring your benefit to about $2,480.

During those three years, some of your savings can take the place of the Social Security checks you are choosing not to collect yet. You might use that money for regular expenses while giving your benefit more time to grow.

Once you claim at 70, you would have about $480 more coming in each month. Future COLAs would be based on that larger benefit too, helping you keep the higher monthly check as you get older.

When waiting for Social Security starts to pay off

Of course, waiting also means passing up the checks you could have collected between 67 and 70. It can take until your early 80s for the extra $480 a month to make up for those missed payments.

A 65-year-old today can expect, on average, to live into their mid-80s, so plenty of retirees may have several years to benefit after reaching that break-even point. Living into your late 80s or 90s gives those larger monthly checks even more time to add up.

Who the bridge strategy works best for

Using savings for a few years is much easier when you can do it without worrying about running short. You want enough left over to handle an unexpected expense without having to scramble for money.

Your health belongs in the decision too, since waiting works better when you expect to collect the larger benefit for many years. Serious health concerns may give you a good reason to start Social Security sooner and keep more of your savings available.

The same thinking applies if you are carrying high-interest debt. Paying down an expensive balance may do more for your finances than using that money to delay Social Security.

Your account choice can change the tax bill

You may have a few different places to pull money from while you wait to claim Social Security, and they do not all affect your taxes the same way.

• Cash savings: Spending money you already have in savings generally does not add to your taxable income.
• Taxable investments: Selling investments may create capital gains, but you are generally taxed only on the gain rather than the full amount you take out.
• Traditional IRA or 401(k): Withdrawals generally count as taxable income, so taking a large amount in one year could raise your tax bill.
• Roth IRA: Qualified withdrawals generally do not count as taxable income, which can make Roth money useful when you want extra spending money without pushing your income higher.

That said, you don't have to rely on just one account. Pulling money from a mix of savings and investments can help you cover your expenses while keeping taxable income from getting higher than necessary.

How the bridge can affect your required withdrawals later

Taking some money from a traditional IRA or 401(k) during the bridge years can leave less in those accounts by the time required minimum distributions begin.

RMDs generally start at age 73 or 75, depending on when you were born. Since the amount you have to withdraw is tied partly to your account balance, using some of that money earlier can mean smaller required withdrawals later.

Smaller RMDs can help keep your taxable income lower as you get older, which may also reduce the chance of higher Medicare premiums. Taking some money out during the bridge years can help keep those future withdrawals smaller instead of leaving every tax-deferred dollar untouched until RMDs begin.

Couples have another reason to think about waiting

For married couples, the higher earner's Social Security decision can affect both spouses. If that spouse dies first, any delayed retirement credits they earned can help increase the survivor benefit available to the other spouse.

The surviving spouse can receive up to the deceased spouse's full benefit at survivor full retirement age.

For instance, if the higher earner waits until 70 and grows a $2,000 benefit to about $2,480, that larger amount can provide more monthly income for whichever spouse lives longer.

The lower earner may also be able to start their own benefit sooner, giving the household some Social Security income while the higher earner waits. For many couples, this can make those bridge years easier to cover.

Bottom line

If you have enough savings to cover a few years without Social Security, waiting can give you a bigger monthly check to lean on later. For some retirees, that can be a smart way to turn money they already have into more guaranteed income over time.

How you cover those waiting years can also help you save money in retirement. A thoughtful mix of savings and withdrawals can make the strategy work better for your day-to-day finances as well as the years ahead.

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