Claiming Social Security too early without considering your overall financial picture is one of the most common mistakes retirees make. This is especially true for retirees under 65 with substantial savings in 401(k) s, IRAs, and other retirement accounts.

There’s a strategy that can be highly effective for retirees in this situation, and financial planners often refer to it as the “bridge strategy.” Here’s how it works and how to tell if it’s the best move for you.

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What is the Social Security bridge strategy?

Let’s say that you’re 65 years old and just retired. You would be eligible for a $2,300 monthly Social Security benefit if you decided to start collecting it right now. You also have about $1.5 million in retirement accounts.

Now, instead of claiming Social Security, let’s say that you decided to simply use your retirement accounts to cover your living expenses for the first five years of your retirement, planning to claim Social Security at age 70 instead.

On one hand, you’d be drawing down your savings a little faster than if you had started collecting Social Security at 65. But on the other hand, your Social Security benefit would grow to nearly $3,300 per month at age 70, giving you about $1,000 per month in additional guaranteed, inflation-protected retirement income. Over a decade, that’s a six-figure sum of money.

Here’s the short version. The bridge strategy involves living off your retirement savings until you’ve maxed out your Social Security benefit at age 70.

The benefits can be fantastic

There are several potential benefits of the bridge strategy, beyond the obviously higher monthly Social Security checks you’ll get.

For one thing, Roth conversions could make a lot of sense during the bridge period. While you’re only living off of your retirement savings, there’s a good chance that you’ll have significantly lower taxable income (and be in a lower tax bracket) compared to your working years. Strategically converting some money from your tax-deferred IRAs and 401(k)s into Roth accounts can help keep your tax bills lower throughout your retirement. This strategy can also lower your eventual required minimum distributions (RMDs), since RMDs don’t apply to money in Roth accounts.

Additionally, if you’re married, the bridge strategy of delaying the higher earner’s Social Security benefit until 70 also maximizes the survivor benefit that will continue in the event the higher-earning spouse dies first.

One big caveat

In order to ensure the bridge strategy works, it can be a smart idea to liquidate enough of your investments to accumulate at least three years’ worth of living expenses in cash in your accounts before you retire.

Think about it this way. Let’s say that your portfolio is mostly in stocks (or stock-based investment funds) and the market crashes a couple of years into your retirement. You’ll be forced to sell investments at crash-level prices to maintain your bridge strategy. But if you have the money in cash, you don’t have to worry about market risk while letting your Social Security benefit grow.

Who should use the bridge strategy?

To be perfectly clear, there is no Social Security claiming age or retirement savings drawdown strategy that is appropriate for everyone. The bridge strategy can be a particularly strong choice for retirees who have sufficient savings to comfortably fund the first few years of retirement, are in relatively good health, and have a reasonable expectation of living into their 80s.

Of course, every situation is different. If you’re wondering if the bridge strategy could be a good fit, it’s always a smart move to seek the advice of a Certified Financial Planner® or other experienced professional who can assess your entire financial situation.

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