One of the biggest challenges that you face in maximizing Social Security is the misconception that Social Security should probably begin once you retire. This is a logical assumption when you think about the income gap you’re going to have once you lose your work income.
But here’s the thing…. you can build a bridge between the end of work and the beginning of delayed Social Security benefits.
As a reminder, the value of delaying Social Security, especially you as the primary income earner, is that it provides a larger percentage of guaranteed income in retirement (and for your surviving spouse) and allows less stress to be put on your portfolio withdrawals over time.
The question is… How can you build an income bridge after work ends without delaying retirement? The following are a few potentials worth considering…
Portfolio Withdrawals:
You can draw from your investment portfolio during the years that you delay Social Security. Keep in mind that many times the reduction in portfolio value is offset by the increase in predictable Social Security income later on.
Other benefits of using your portfolio during this “income bridge” is that for qualified assets such as 401(k) and IRA accounts it will reduce the required minimum distributions (and taxation) when you begin these at age 72.
Part-Time Work:
You also might consider a small amount of part-time work equal to the amount of Social Security income benefits you would receive if you would have turned it on when you retire. In the grand scheme of things the amount of work to create this level of income might be fairly minimal and would continue to engage you and keep you active physically and mentally.
Access HECM During Delay:
You can also access housing wealth through the Home Equity Conversion Mortgage (HECM) or Reverse Mortgage program.
You can establish a reverse mortgage line of credit at retirement and draw from it for the period of years that Social Security is delayed. There would be no required payment on the amount borrowed until the home is later sold or all occupants had left (read passed away).
If you still have mortgage payments that are similar in amount to your Social Security benefit, you could replace your traditional mortgage with the HECM and pause your mortgage payments during the time you are delaying your benefit. Not having to make a payment would be equal to getting the Social Security benefit. You could resume your mortgage payments afterward if you want.
In any potential bridging strategy care must be taken to effectively plan and examine the trade-offs and advantages.
If you have questions about how to bridge your income gap, please contact me.
