Understanding the Social Security Bridge: A Comprehensive Guide

Waiting to collect Social Security can significantly increase your monthly benefit payments. However, according to the 2023 Schroders U.S. Retirement Survey, only 10% of non-retirees plan to wait until 70 to maximize their benefits. While many people prefer not to work into their 70s, delaying Social Security doesn’t necessarily mean delaying retirement. This is where a Social Security bridge comes into play.

What Is a Social Security Bridge?

A Social Security bridge provides monthly income in place of Social Security after you stop working but before you start collecting benefits. It allows you to enjoy a regular monthly income as if you were taking Social Security benefits while increasing your actual benefit amount by delaying the start of your benefit payments.

Why Delay Social Security?

Waiting to start Social Security payments can have significant long-term advantages. The Social Security Administration sets your monthly benefit amount based on your lifetime earnings and your age when you begin collecting benefits. Up to age 70 (when benefit increases end), the older you are when you start taking benefits, the larger your monthly payment will be. Your payment amount increases 8% per year, or 0.67% every month you delay taking benefits after reaching full retirement age (currently 67). If you start taking benefits at 62, your monthly benefit will be 30% lower than it would be at full retirement.

By postponing the start of your Social Security benefits, you’re essentially awarding yourself a larger monthly income for life. Your retirement accounts may run out; Social Security (Congress willing) does not. Social Security payments are also indexed for inflation, so your payments increase with the cost of living over time.

Social Security Bridge Example

Here’s how the numbers play out. Say your monthly Social Security retirement benefit is $2,000 at your full retirement age of 67. If you retire early and start collecting Social Security at age 62, your monthly benefit will be reduced to $1,400. If you wait until 70 to begin collecting benefits, your monthly payment will be $2,480, or more than $1,000 over what you would receive if you retired at 62.

Instead of collecting $2,000 a month at 67, you could use retirement savings and other assets to pay yourself $2,000 a month for three years until you reach age 70. This would cost you a total of $72,000. In return, you would receive an additional $480 a month ($5,760 per year) for life, no matter how long you live. Spousal and survivor benefits may also increase when you delay taking benefits. For retirees who worry about running out of funds, the additional lifetime monthly income can be a source of comfort.

Pros and Cons of the Social Security Bridge Strategy

Building a Social Security bridge isn’t for everyone. You need assets to support yourself without the benefit of monthly Social Security payments. Planning and orchestrating payments from multiple sources can be mathematically and logistically difficult. Here are some pros and cons to think through if you’re wondering whether a Social Security bridge might work for you.

Pros of a Social Security Bridge

For retirees who can swing a few years of self-support, a Social Security bridge can pay off, both financially and emotionally.

• You can increase your Social Security benefit payments—for life. Your initial payment becomes the basis for future increases, so starting later with a higher payment amount means larger payments forever.
• You keep more of your earnings if you work. Social Security reduces your monthly benefit when you earn money—$1 for every $2 earned above $22,340 before you reach full retirement age; $1 for every $3 earned above $59,250 after full retirement age. If you plan to work at all post-retirement, you may want to delay benefits to receive a larger payment later and avoid having your benefits reduced now.
• You’ll need less monthly income later. Maximized payments mean less pressure on your retirement accounts once your benefits kick in. Postponing benefits until 70 may make finances in your 60s more complicated, but there is a payoff in the long run.

Cons of a Social Security Bridge

This strategy may not be right for you if you don’t have enough savings to bridge the gap comfortably—or enough longevity to make the wait worthwhile.

• You may pay more in taxes. Understanding your potential tax liability can be complicated. Depending on where you get bridge payments—traditional retirement accounts, taxable investments or Roth accounts—your withdrawals might be taxed (or partially taxed) as regular income or capital gains; they also might be untaxed. Meanwhile, up to 85% of your Social Security benefits are subject to federal income taxes. Here, the advice of a tax pro or retirement planner may be invaluable.
• You’ll deplete your savings. Using up funds in your 60s could set you up for shortages in your 70s and beyond. You’ll also have fewer assets to pass on to your heirs when you die. More immediately, you may not have enough money to build a bridge and may need monthly benefits to support yourself now. If you don’t have ample savings, this may not be the strategy for you.
• You need time to reap the benefits. In our earlier example, you would need 12.5 years to recoup the $72,000 you fronted to delay collecting Social Security: You would break even around age 82.5. If you lived to be 82.6 or older, you would win. However, if you passed away at age 65, you might never see a dime of Social Security, a risk you take when you delay benefits.
• You need trust in the system. In the Schroders survey, 44% of respondents feared Social Security might run out of money or stop making payments. To believe in the bridge strategy, you must also believe Social Security will continue in its current form well into the future.

Should You Use a Social Security Bridge?

A Social Security bridge may be worth considering if you have enough assets (or earnings from work or a business) to support yourself and would like to lock in a larger monthly benefit payment for life. That said, comparing the advantages and disadvantages can be a big mathematical challenge. Factoring in longevity versus retirement assets, investment returns, tax rates, income needs, emergency and health care expenses and more is complex—and small changes in rates of return or distribution amounts can change your outcomes significantly.

Working with a financial planner who specializes in retirement planning may be a huge help. They can help you work through the many contingencies to find the sweet spot between waiting for a bigger monthly payment later and enjoying a smaller payment now. If you’re very handy with financial planning software, you may be able to work through some of these scenarios yourself.

The Bottom Line

Considering a Social Security bridge may be part of planning for your retirement, but it’s only one piece of a much larger puzzle. If you want to build out your knowledge about Social Security benefits—and specifically your Social Security benefits—you may want to create a my Social Security account online. You can use your account to estimate your projected monthly benefits based on lifetime income and age at retirement.

Whether or not a Social Security bridge is for you, thinking concretely about your retirement finances is a helpful exercise for pre-retirees. Taking the time to clearly understand how much money you should have saved in retirement, how retirement assets might last over time, how your tax profile might change as a retiree and how much you can expect to spend post-retirement can help you plan more effectively and move toward your goals.

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