The Bridge to a Larger Social Security Check

Retirees who postpone collecting Social Security from age 62 to 66 – the full retirement age for most baby boomers – get around a third more in their monthly checks. Delaying to 70 increases it even more.

There’s one problem with this strategy. Many people want to retire well before they turn 66.

But there is an alternative for people with 401(k) savings: retire but don’t sign up for Social Security and withdraw an amount from the 401(k) equivalent to the Social Security check. Then delay Social Security for a few years. The start date will, of course, depend on how much money is in savings and how much of it the retiree can spend comfortably.

In a recent experiment, this idea appealed to a substantial minority of older workers who were made aware they could create this so-called “bridge” to a larger Social Security check.

The researchers randomly assigned the workers – all between 50 and 65 – to one of four groups. Each group was presented with the same choice of whether to use the bridge strategy but the choice was described differently. Regardless of the description, the share of participants willing to consider the strategy fell within a range of 27 percent to 35 percent.

This level of interest is “noteworthy,” given that “the survey is likely the first time the respondents would have encountered the idea of drawing down their 401(k)s to postpone claiming Social Security,” said the researchers at the Center for Retirement Research.

The first of the four groups of older workers got a brief description of the bridge and were asked how much retirement savings, up to half, they would be willing to withdraw in order to delay Social Security. The second group’s proposal was identical to the first but called Social Security a Lifetime-Income Account, a term that insurers use to describe annuities. The 401(k) was labeled a Wealth Account, and the pros and cons of lifetime annuity income versus wealth were presented. The third option was also the same as the first, but with more detail about how the bridge works.

The fourth option for delaying Social Security was presented as a default: half of the worker’s 401(k) account would be allocated to the bridge strategy. They were given the option of keeping, reducing, or eliminating the defaulted amount.

Where the options made the most difference was in how much the workers were willing to allocate to the bridge strategy. The people who were assigned the default option were willing to allocate more of their 401(k) savings, about a third of the balance, on average.

With more testing of the default, the researchers said employers might be able to add the option to their 401(k) plans, similar to TIAA offering annuities to workers who save in university 403(b) plans.

This simple experiment was a first step. Future studies could examine the effectiveness of the default option “in a more realistic setting,” the researchers said.

To read this study, authored by Alicia H. Munnell and Gal Wettstein, see “Would 401(k) Participants Use a Social Security “Bridge” Option?”