One of the biggest challenges I face with clients in maximizing Social Security is the misconception that Social Security income should probably begin after work ends. This is a logical assumption when a retiree thinks about the potential income gap they will have once they lose their work income.
A new concept for them is the idea that you can build a bridge between the end of work and the beginning of Social Security benefits if they are taken later on.
As a reminder, the value of delaying Social Security, especially for the primary income earner, is that it provides a larger percentage of guaranteed income in retirement (and for a surviving spouse) and allows less stress to be put on portfolio withdrawals over time.
The question is… How does one build an income bridge after work ends while delaying retirement? The following are a few potentials worth considering…
Portfolio Withdrawals:
Retirees can draw from their investment portfolio during the years that they 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 the portfolio during this bridge is that for qualified assets such as 401(k) and IRA accounts it will reduce the required minimum distributions (and taxation) when these begin at 72.
Part-Time Work:
Others might consider a small amount of part-time work equal to the amount of Social Security income benefits they would have received had they turned them on early. In the grand scope of things the amount of work to create this level of income might be fairly minimal and would continue to engage the retiree and keep them active physically and mentally.
Reverse Mortgage Payments During Delay:
One can also test the efficacy of using reverse mortgage payments during the years of delay and then stopping them when Social Security benefits begin.
Also a possibility is establishing a reverse mortgage line of credit at retirement and drawing 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).
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.
