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.
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What is the bridge strategy?
The bridge strategy involves using your savings to cover your early retirement years. That way, you don’t have to claim Social Security when you’re first able to, at age 62, increasing you benefits.
Keep in mind that when you withdraw money from retirement accounts, you’ll have to pay taxes on that money (with the exception of withdrawals from Roth accounts). But only up to 85% of Social Security income is taxable. Many more states also tax retirement account distributions than Social Security benefits.
Some retirement accounts also come with required minimum distributions (RMDs). Withdrawing from these accounts once you're able to do so penalty-free at age 59 ½ can reduce your required minimum distribution later on, since RMDs are based on a percentage of your account's balance. RMDs only apply to traditional plans, not Roth accounts.
You don’t need to be wealthy to use the bridge strategy. Even if you do not have a multi-million dollar nest egg that needs gradual withdrawals to minimize taxes, it can still be advantageous to delay Social Security so you end up with a higher benefit.
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Why delaying can pay off
You can start receiving Social Security at age 62, and get your full benefit once you hit your full retirement age (between age 66 and 67, depending on when you were born).
For every year that you delay receiving Social Security between full retirement age and age 70, your benefit may increase by 8%.
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Is the bridge strategy right for you?
The bridge strategy can be a good way to increase your Social Security benefits, but you need enough money in your savings to pull it off.
You can also pair the bridge strategy with a part-time job, which still gives you plenty of flexibility along with an extra income source. The bridge strategy involves the deliberate use of assets that you have accumulated over multiple decades. It’s especially valuable if you have a lot of money stored in traditional retirement plans. You can trim these account balances before required minimum distributions take effect.
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