Unless you can get a guaranteed annual return of 8% on your retirement savings, employing a Social Security “bridge” with 401(k) and other savings until age 70 is the right move for almost all Americans who can afford to forgo the income. This bridge strategy, laid out in a white paper by the Center for Retirement Research at Boston College (see the last blog post), works for most people because retirees’ monthly Social Security checks increase 7% to 8% for every year they delay claiming up to age 70, when Social Security benefits max out. Following a Barron’s article last week on the strategy, skeptical readers had a number of questions regarding specific scenarios. Here, some answers:
Q: If I use my assets and die at 70, I will have taken $0 from Social Security. If I take Social Security at age 62 (while my assets gain) and I die at 70, I can still leave my money to my wife. Shouldn’t I use Social Security immediately then? A: Delaying acceptance of Social Security provides higher monthly benefits and higher survivor benefits.
Q: Does the strategy make sense in light of the threat that the Social Security fund will default in the 2030s or that benefits could be cut significantly? A: People may feel the need to take Social Security early because they fear they will not get their benefits in the end, butone expert says a loss or significant reduction of benefits is unlikely. To keep Social Security solvent, legislators may increase payroll deductions and taxes or change benefit payouts or the full retirement age, he said.
Q: Is there any change to the calculation of required minimum distributions at age 70½ by virtue of having already taken voluntary distributions earlier? A: “Taking out distributions before 70½ reduces the amount of assets subject to the RMD calculations,” CRR study author Alicia Munnell says, “but it does not change the percentage amounts of the required RMD withdrawals.”
You can find more questions and the full answers at Barrons.com.