Retiring from work and beginning Social Security do not have to happen at the same time. Many people leave the workforce months, or even several years before they decide to claim benefits. That gap can create an opportunity to delay Social Security and potentially receive a larger monthly benefit, but it also raises an important question: Where will your income come from in the meantime? A thoughtful bridge strategy should coordinate retirement-account withdrawals, taxable savings, healthcare costs, taxes, and future Social Security income rather than treating each decision separately.
Article Summary
Retiring before Social Security begins creates an income gap that must be funded from other sources. A coordinated plan should address:
- How much income you will need before benefits begin
- Whether delaying Social Security fits your circumstances
- Which accounts should fund the gap
- How withdrawals may affect taxes
- Whether early-distribution penalties could apply
- How health insurance will be handled before Medicare
- How market declines could affect the strategy
- What happens to the surviving spouse’s income
- When the plan should be reviewed and adjusted
The goal is not simply to find enough money to cover a few years. It is to determine how the bridge period affects the rest of retirement.
Retirement and Social Security Are Separate Decisions
Leaving your job does not automatically require you to begin Social Security. Social Security retirement benefits may generally begin as early as age 62. However, claiming before full retirement age permanently reduces the monthly benefit compared with waiting until full retirement age. Delaying beyond full retirement age can increase the monthly benefit until age 70, when delayed retirement increases stop. This means someone could:
- Retire at 60 and begin Social Security at 62
- Retire at 62 but wait until full retirement age
- Retire at 65 and delay benefits until 70
- Reduce work gradually while coordinating earned income and benefits
The appropriate timing depends on more than age. Health, life expectancy, marital status, survivor benefits, available assets, taxes, and the need for immediate income should all be considered.
Understanding the Retirement-Income Gap
The period between the last paycheck and the first Social Security payment is often called a retirement-income bridge. Suppose someone retires at age 63 and plans to delay Social Security until age 67. Their plan must provide four years of income from other sources. That income could come from:
- Cash savings
- Taxable brokerage accounts
- Traditional IRAs
- Employer retirement plans
- Roth accounts
- Pension income
- Annuity payments
- Rental or business income
- Part-time employment
The bridge should account for more than ordinary living expenses. It may also need to cover taxes, health-insurance premiums, home repairs, travel, debt payments, and unexpected costs.
Why Someone May Delay Social Security
Delaying Social Security can increase the monthly benefit, but that does not automatically make waiting the right decision for everyone. Someone may consider delaying because they:
- Expect a long retirement
- Want a larger source of guaranteed monthly income later
- Have other assets available to fund the early years
- Want to strengthen a potential survivor benefit for a spouse
- Prefer to reduce reliance on investments later in life
- Are concerned about longevity and inflation
For people born in 1960 or later, full retirement age is 67. According to the Social Security Administration, delaying from age 67 to age 70 can result in a benefit equal to 124% of the full-retirement-age amount. However, delaying also means giving up payments that could have been received earlier. Health, family longevity, financial resources, and personal preferences should be part of the decision.
Where Should the Bridge Income Come From?
There is no universal account-withdrawal order that works for every retiree. A thoughtful strategy may use several types of assets rather than relying entirely on one account.
1) Cash and Short-Term Reserves
Cash can provide a stable source of near-term spending and may reduce the need to sell investments during a market decline. However, holding too much in cash for too long can reduce growth potential and expose purchasing power to inflation. The reserve should be connected to anticipated spending rather than chosen arbitrarily.
2) Taxable Investment Accounts
Taxable brokerage accounts may provide flexibility because withdrawing cash is not automatically taxed in the same manner as taking a traditional IRA distribution. Taxes generally depend on factors such as:
- The investment’s cost basis
- Whether a gain or loss is realized
- How long the investment was held
- Interest and dividend income
- The retiree’s overall taxable income
Using taxable assets during the bridge period may also create opportunities to manage capital gains or rebalance the portfolio.
3) Traditional Retirement Accounts
Withdrawals from traditional IRAs and many employer retirement plans generally create taxable income. If the retiree is younger than age 59½, an additional 10% federal tax may apply unless an exception is available. The rules vary by account type and circumstance, so access should be evaluated before retirement begins. Even after age 59½, the size and timing of withdrawals can affect:
- Income-tax brackets
- Capital-gains taxation
- Future required distributions
- Health-insurance subsidies before Medicare
- The taxation of Social Security after benefits begin
4) Roth Accounts
Qualified Roth withdrawals can provide tax-free income and may give retirees greater control over taxable income. However, automatically using Roth assets first may not always be the best long-term strategy. Roth funds may also be valuable during future high-tax years, for major purchases, or as part of a legacy strategy. The decision should consider both the immediate bridge period and the expected tax picture later in retirement.
The Role of Tax Planning
The years after retirement but before Social Security and required minimum distributions begin may offer unusual tax-planning flexibility. Employment income may have ended, while Social Security, pensions, and required distributions may not yet have started. This could create relatively low-income years. During that period, retirees might evaluate:
- Planned traditional IRA withdrawals
- Partial Roth conversions
- Realizing capital gains
- Charitable gifts
- Using taxable versus tax-deferred accounts
- Managing income for health-insurance purposes
A Roth conversion generally creates taxable income in the year of conversion. Therefore, the potential long-term benefit should be weighed against the immediate tax cost and the effect on other income-based calculations. The goal is not necessarily to pay the least tax in one particular year. It is to manage taxes across the full retirement period.
Do Not Overlook Healthcare Before Medicare
Someone who retires before age 65 may also face a healthcare-coverage gap. Medicare eligibility generally begins around age 65, although certain disabilities and medical conditions may permit earlier eligibility. Someone who retires before then may need coverage through:
- A spouse’s employer plan
- COBRA
- The Health Insurance Marketplace
- Retiree coverage from a former employer
- Other private insurance
HealthCare.gov states that someone who retires before age 65 and loses job-based coverage may purchase Marketplace coverage. Losing employer coverage can qualify the retiree for a Special Enrollment Period outside the regular annual enrollment window. Marketplace assistance can depend on household income. As a result, large IRA withdrawals, Roth conversions, capital gains, and other income decisions could affect premium assistance and should be coordinated with the tax strategy.
How Market Volatility Can Affect the Bridge
A retirement-income bridge may rely heavily on investment withdrawals during the first several years of retirement. That can make early market declines especially important. If investments decline while withdrawals continue:
- More shares may need to be sold
- Fewer assets remain to participate in a recovery
- The portfolio may become less able to support later spending
- The retiree may feel pressured to begin Social Security sooner than planned
A bridge strategy may therefore include:
- Dedicated cash reserves
- Short-term, more stable investments
- Flexible discretionary spending
- Multiple income sources
- A process for deciding which account to use during a downturn
Delaying Social Security should not require someone to take an inappropriate level of investment risk or deplete the portfolio in a way that weakens the rest of the plan.
What If You Continue Working Part Time?
Part-time work can reduce the amount that must be withdrawn from investments and may make delaying Social Security easier. However, someone who begins Social Security before full retirement age and continues working may be subject to the retirement earnings test. Benefits can be withheld when earnings exceed the applicable annual limit. Once full retirement age is reached, the earnings test no longer applies, and Social Security recalculates benefits to account for months in which payments were withheld. Because earnings limits change over time, individuals should verify the current threshold before claiming benefits while continuing to work.
How the Decision Affects a Spouse
Social Security planning should generally be evaluated at the household level rather than separately for each spouse. Questions to consider include:
- Which spouse has the larger earnings record?
- How would delaying affect the potential survivor benefit?
- What income remains after the first spouse dies?
- Will one spouse claim earlier while the other delays?
- How do pensions and investments support the household during the gap?
- What happens if the spouse with the larger benefit dies first?
In many couples, the larger Social Security benefit may eventually become the survivor’s continuing benefit, subject to applicable Social Security rules. This makes the claiming decision about more than receiving the most income today.
Build the Bridge Before Leaving Work
The best time to plan for the gap is generally before the final paycheck stops. A written bridge strategy should identify:
- The planned retirement date
- The target Social Security date
- Expected monthly expenses
- Healthcare costs before and after Medicare
- Available cash reserves
- Planned withdrawals by account
- Estimated taxes
- Market-downturn adjustments
- Large one-time purchases
- Survivor-income needs
The strategy should also include checkpoints. Retirement dates, spending needs, investment values, tax laws, and health circumstances can all change.
The Bottom Line
Retiring before Social Security begins is possible, but the years between the last paycheck and the first benefit should be planned carefully. A successful bridge is not simply a pool of cash set aside for a few years. It is a coordinated strategy that connects income, investments, taxes, healthcare, Social Security, and survivor planning. The central question is not only: “Can I afford to delay Social Security?” It is: “How will delaying affect my income, taxes, investments, healthcare, and financial security throughout retirement?”
Frequently Asked Questions
1. Can I retire before age 62?
Yes. There is no general Social Security rule requiring someone to continue working until age 62. However, Social Security retirement benefits generally cannot begin before age 62, so income must come from savings, investments, pensions, employment, or other sources until benefits become available.
2. Is it always better to delay Social Security until age 70?
No. Delaying can increase the monthly benefit, but the decision depends on health, life expectancy, spouse and survivor considerations, available assets, taxes, and the need for current income. Monthly retirement benefits stop increasing due to delay after age 70.
3. Can I use my IRA to fund the gap?
Yes, but distributions from a traditional IRA generally create taxable income. Withdrawals before age 59½ may also face an additional 10% federal tax unless an exception applies.
4. How do I obtain health insurance if I retire before Medicare?
Possible options include a spouse’s employer plan, COBRA, retiree coverage, private insurance, or a Health Insurance Marketplace plan. Losing employer-sponsored coverage can qualify someone for a Special Enrollment Period.
5. What is the biggest risk of retiring before Social Security begins?
One major risk is withdrawing too much from investments during the early years of retirement, particularly if markets decline. Other risks include underestimating healthcare costs, creating unnecessary taxes, claiming Social Security earlier than intended, and failing to account for the surviving spouse’s future income.
Sources:
*https://www.ssa.gov/retirement/plan-for-retirement
**https://www.healthcare.gov/retirees/