How to Fill the Income Gap Before Social Security Pays More
Retiring before age 70 does not mean you have to claim Social Security immediately. The right income bridge can cover your expenses now while allowing a larger Social Security benefit to develop for later retirement.
One of the biggest decisions in retirement planning is not simply when to retire, but when to start Social Security.
You can generally begin retirement benefits at age 62. However, starting early permanently reduces your monthly retirement benefit. For someone born in 1960 or later, whose full retirement age is 67, claiming at 62 produces about 70% of the full retirement benefit. Waiting until age 70 produces 124% of the full retirement benefit. There is no additional delayed-retirement increase after age 70.
That creates an interesting question: Can you retire earlier without claiming Social Security earlier?
For many retirees, the answer is yes. Instead of immediately turning on Social Security, you can temporarily replace that income with retirement savings, annuity income, investments, or other assets.
Why Delay Social Security in the First Place?
The primary reason is simple: a potentially larger guaranteed monthly benefit later.
Consider someone whose full retirement age benefit would be $2,000 per month:
| Claiming Age | Approximate Monthly Benefit |
|---|---|
| 62 | $1,400 |
| 67 | $2,000 |
| 70 | $2,480 |
Example assumes a full retirement age of 67 and is for illustration only. Your actual Social Security benefit will depend on your earnings history and claiming age.
The difference becomes increasingly important if you live into your 80s or 90s.
Delaying can also be particularly valuable for a married couple when the higher earner delays. A higher primary benefit translates to larger benefits for a spouse or survivor if that spouse dies first.
There is also an inflation protection component. Social Security benefits receive cost-of-living adjustments (COLAs), helping provide protection against increases in living expenses over retirement.
Inflation does not increase by the same amount every year. Some years may experience relatively little inflation while others may experience substantial increases. A larger Social Security benefit does not eliminate inflation risk, healthcare costs, or long-term care costs, but it creates a larger lifetime income floor with which to handle those expenses.
How Annuity Income Helps Delay Social Security
1. Use a Fixed Indexed Annuity With Guaranteed Lifetime Income
For retirees who have accumulated substantial money in a 401(k), 403(b), TSP, IRA, Keogh plan, or similar retirement account, one solution is converting part of those savings into an annuity designed for lifetime income.
A fixed indexed annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB) can establish a contractually defined withdrawal amount that continues for life when the contract’s conditions are followed.
This creates a second retirement paycheck alongside Social Security.
For example, assume you need $8,000 per month for living expenses, but your eventual Social Security will provide $3,500 per month. Your retirement-income gap is $4,500 per month, or $54,000 annually.
Instead of asking, “How much can I withdraw from my portfolio?” you can reverse engineer the problem: How much premium would an annuity require to guarantee approximately $54,000 of annual lifetime income?
That amount depends on your age, whether income covers one or two lives, when withdrawals begin, the insurance company, the income rider, and current contract terms.
Pros
- Can create predictable lifetime income.
- Reduces dependence on stock-market withdrawals for essential expenses.
- Can continue paying even after the contract’s account value reaches zero, subject to rider terms.
- Joint-life versions can protect a surviving spouse.
- Remaining account value may generally pass to beneficiaries, depending on the contract.
Cons
- Surrender charges can limit liquidity.
- Income riders may have annual costs.
- Taking withdrawals above the permitted amount can reduce future guarantees.
- Annuity guarantees depend on the issuing insurer’s claims-paying ability.
- Money placed inside an IRA annuity does not receive an additional layer of tax-deferred growth merely because it is an annuity; the IRA was already tax-deferred.
Who Could Benefit
Someone who wants to retire but is uncomfortable relying entirely on market withdrawals to pay their mortgage, utilities, groceries, insurance premiums, and other recurring expenses.
Who Might Not Benefit
Someone who already has enough Social Security, pensions, rental income, or other guaranteed income to cover essential expenses may have little reason to convert additional assets into guaranteed lifetime income.
2. Use an Accelerated or Front-Loaded Annuity Income Option
This can be one of the more interesting ways annuities are coordinated with delayed Social Security.
Certain annuity income riders offer higher income during the earlier portion of retirement and lower income later.
That structure can fit Social Security planning because your income needs may look something like this:
- Age 60–69: Higher annuity income + no Social Security
- Age 70 onward: Lower annuity income + higher Social Security income
In other words, one income source intentionally steps down when another steps up.
The exact amount of the initial income, how long it lasts, and how much it decreases later will depend on the annuity contract. An accelerated payout does not universally decrease by the same percentage or after the same number of years.
Pros
- Matches higher annuity income with the Social Security bridge years.
- Can make delaying Social Security easier.
- Provides a predetermined income structure instead of manually selling investments every month.
- Lifetime guarantees may continue after the initial high-income period.
Cons
- Your annuity paycheck may drop substantially later.
- You must verify that Social Security and other income will adequately replace the reduction.
- Product structures vary widely.
- Excess withdrawals can reduce or eliminate guarantees.
Who Could Benefit
Retirees who know Social Security or another pension will begin later and deliberately want more income during the first several years of retirement.
Who Might Not Benefit
Someone who expects expenses to increase substantially later in retirement or does not have enough future Social Security, pension, or other income to offset the eventual reduction in annuity income may prefer level or increasing lifetime income instead.
3. Build a Short-Term Fixed Annuity or MYGA Bridge
You do not necessarily need lifetime income.
Suppose you’re 65 and want to delay Social Security until 70. You only need to finance a five-year gap.
A short-term fixed annuity or multi-year guaranteed annuity (MYGA) can potentially be used as part of that bridge. You deposit money, receive a stated fixed interest rate for a defined period (such as 3–5 years), and strategically use available withdrawals to help fund expenses.
However, you have to match the contract to the spending plan. MYGAs can have surrender-charge periods and restrictions on how much money can be withdrawn without a charge.
Pros
- Predictable interest.
- No direct stock-market volatility.
- Useful when the gap has a clearly defined ending date.
- Can be simpler than a lifetime-income strategy.
Cons
- Liquidity restrictions matter.
- Taking too much may trigger surrender charges.
- Inflation can reduce purchasing power.
- A MYGA does not automatically provide lifetime income.
Who Could Benefit
Someone with a short, clearly defined Social Security bridge who does not need another lifetime pension.
Who Might Not Benefit
Someone who needs unrestricted access to the entire account or whose primary concern is creating income that cannot be outlived may be better served by another strategy.
4. Create a Cash, CD, or Treasury Ladder
You do not have to use insurance products to bridge Social Security.
If you need $50,000 annually from age 65 through age 70, you might create separate pools of money designed to become available each year.
Cash kept in emergency funds can cover the immediate period, while CDs or Treasuries can be structured around subsequent years.
This strategy can be particularly useful when the primary objective is temporary income rather than lifetime income.
Pros
- Relatively straightforward.
- Can provide predictable access to money at scheduled intervals.
- Avoids exposing the entire bridge fund to stock-market volatility.
Cons
- Every dollar spent bridging Social Security is no longer available for later retirement.
- Future interest rates may be lower when CDs or Treasuries mature.
- May provide less long-term growth than investments.
Who Could Benefit
Retirees with enough liquid savings to fund several years of expenses without jeopardizing the remainder of their retirement plan.
Who Might Not Benefit
Someone with limited savings who would have to spend a large percentage of their retirement assets just to delay Social Security may need a different strategy.
5. Withdraw From a Taxable Investment Account
A taxable brokerage account can also bridge the gap.
Instead of claiming Social Security at 62, you could sell investments periodically and use those proceeds for living expenses.
This provides more growth potential than keeping everything in cash, but it also introduces sequence-of-returns risk. A major market decline immediately after retirement may force you to sell investments when values are depressed.
That is why retirees frequently combine strategies rather than relying exclusively on investments.
You could use guaranteed income for necessities and leave a portion of the portfolio invested for growth.
Pros
- Greater liquidity than many annuity contracts.
- Continued opportunity for investment growth.
- Flexible withdrawals.
Cons
- Market losses can occur at the worst possible time.
- Investment sales may create taxable gains.
- There is no guarantee the account will last for life.
Who Could Benefit
Someone with significant taxable investments who can tolerate market fluctuations and has enough assets to avoid selling investments during a downturn.
Who Might Not Benefit
Risk-averse retirees who rely on the account for essential monthly expenses may prefer to protect at least part of their income from market volatility.
6. Strategically Withdraw From Retirement Accounts
Traditional IRAs, 401(k)s, 403(b)s, TSPs, and similar retirement accounts can also provide bridge income.
However, taxes and age matter.
Distributions from tax-deferred retirement accounts are generally taxable as ordinary income, and withdrawals taken too early may also be subject to an additional federal tax unless an exception applies.
This means someone retiring at 57 needs a different withdrawal strategy than someone retiring at 65.
Be careful about automatically rolling everything out of an employer retirement plan before analyzing your withdrawal options. Certain early-withdrawal exceptions available through an employer plan may work differently after money is moved to an IRA.
Pros
- Uses retirement money for its intended purpose.
- Can help bridge several years before Social Security begins.
- May allow you to intentionally manage taxable income before required minimum distributions (RMDs) begin later in retirement.
Cons
- Withdrawals are generally taxable.
- Early-distribution penalties may apply depending on your situation.
- Taking too much early can reduce assets available later.
Who Could Benefit
Retirees with substantial tax-deferred savings who can carefully coordinate withdrawals with Social Security and their overall tax strategy.
Who Might Not Benefit
Someone who would face significant taxes or penalties by accessing retirement money early may benefit from using taxable savings or another bridge first.
7. Directly Roll Retirement Money Into an IRA Annuity
When an annuity is appropriate, eligible employer retirement money can often be transferred directly into an IRA annuity.
A direct rollover generally allows the retirement plan administrator to send the money directly to the IRA annuity rather than paying the money to you first.
This can simplify the process and help avoid unnecessary withholding or rollover mistakes.
Not every retirement-plan distribution is eligible for rollover, so the transfer should be reviewed before moving the money.
Pros
- Can preserve tax-deferred status.
- Can convert a portion of retirement savings into guaranteed income.
- A direct transfer can simplify the rollover process.
Cons
- Annuity surrender periods can reduce liquidity.
- Not every retirement distribution can be rolled over.
- Moving the entire retirement account into an annuity may leave too little liquid money available.
Who Could Benefit
Someone who has accumulated substantial employer retirement savings and wants to convert a portion of those assets into predictable retirement income.
Who Might Not Benefit
Someone who needs unrestricted access to most of their retirement savings or already has enough guaranteed lifetime income may not need an IRA annuity.
8. Use Roth Money Strategically
Qualified Roth IRA distributions can provide tax-free retirement income, making Roth assets potentially valuable during a Social Security-delay period.
But draining Roth money simply to delay Social Security is not automatically a good move. Roth assets can be particularly valuable later in retirement because of their tax treatment.
The decision should be based on lifetime taxes rather than simply trying to maximize Social Security.
The lower-income years between retirement and Social Security can also create an opportunity to consider Roth conversions, although conversions themselves can generate taxable income.
Pros
- Qualified withdrawals can be tax-free.
- Can provide flexibility when managing taxable retirement income.
- May help bridge Social Security without creating the same taxable income as traditional IRA withdrawals.
Cons
- Spending Roth assets early reduces tax-free assets available later.
- Roth conversions can create current-year taxable income.
- A poor conversion strategy can unexpectedly increase taxes or Medicare-related costs.
Who Could Benefit
Someone with significant Roth savings who wants flexibility over where retirement income comes from each year.
Who Might Not Benefit
Someone who has limited Roth assets and expects those assets to be more valuable later in retirement or as an inheritance may want to preserve them.
9. Delay a Pension or Coordinate It With Social Security
Some pensions offer larger payments when commencement is delayed.
If yours does, compare several combinations: pension now + Social Security later, Social Security now + pension later, retirement savings first + pension and Social Security later, or an annuity bridge + pension + Social Security.
The goal should be maximizing reliable lifetime cash flow, not maximizing one benefit in isolation.
Pros
- May increase guaranteed income later.
- Allows multiple income sources to be coordinated.
- Can reduce dependence on investments later in retirement.
Cons
- Delaying a pension means giving up payments today.
- Not every pension increases enough to justify waiting.
- Survivor-benefit elections can significantly affect the analysis.
Who Could Benefit
Retirees with pensions that provide meaningful increases for delaying benefits and enough other resources to cover the gap.
Who Might Not Benefit
Someone whose pension provides little or no financial incentive for delaying may be better off starting it sooner and delaying Social Security instead.
10. Continue Part-Time Work
Part-time income may eliminate the need to withdraw tens of thousands of dollars from retirement savings during the bridge period.
For someone who doesn’t mind working, this can be one of the least expensive solutions available.
It also reduces the amount of retirement capital you need to convert into income.
Pros
- Reduces withdrawals from retirement savings.
- Can make delaying Social Security easier.
- Allows more retirement assets to remain invested.
Cons
- You are still working during retirement.
- Income can affect taxes and other retirement-planning decisions.
- Part-time work may not be realistic because of health, caregiving responsibilities, or job availability.
Who Could Benefit
Someone who enjoys working, wants additional cash flow, or does not have enough retirement savings to comfortably bridge Social Security entirely from investments.
Who Might Not Benefit
Someone who cannot or does not want to continue working after retirement will need to create the income elsewhere.
11. Use Home Equity When Appropriate
A reverse mortgage or other home-equity strategy can sometimes supplement a retirement bridge, particularly for homeowners with substantial equity and limited liquid assets.
This is generally not the first place to start when someone has adequate retirement savings, but home equity is still part of the retirement balance sheet and should not automatically be ignored.
Fees, interest accumulation, estate goals, housing plans, and the ability to maintain the property all need to be considered.
Pros
- Can create access to wealth otherwise tied up in the home.
- May reduce the amount withdrawn from investment accounts.
- Can provide another source of retirement liquidity.
Cons
- Interest and fees can accumulate.
- Reduces home equity available to heirs.
- The homeowner must continue meeting the requirements associated with the property and loan.
Who Could Benefit
Someone with substantial home equity but limited liquid retirement assets.
Who Might Not Benefit
Someone who plans to move soon, wants to preserve as much home equity as possible for beneficiaries, or has sufficient liquid assets may have better alternatives.
Who Should Consider Delaying Social Security?
Delaying deserves serious consideration when you are healthy, have reasonable longevity expectations, have adequate savings to bridge the gap, want additional guaranteed income later in life, or are the higher-earning spouse whose benefit may eventually affect survivor income.
Understanding Social Security at 62 vs 67 vs 70 can help you make an informed decision on when to claim.
Who Shouldn’t Automatically Delay Social Security?
Waiting until 70 is not universally the right answer.
Claiming earlier may make more sense if you have significant health concerns, shorter life expectancy, inadequate retirement savings, immediate cash-flow needs, or circumstances in which spousal or family benefits make earlier filing advantageous.
The objective should not be to delay Social Security at all costs.
The objective should be to maximize sustainable retirement income while maintaining enough liquidity and flexibility to live your life.
Don’t Forget Medicare While Delaying Social Security
Social Security and Medicare are separate decisions.
You can delay Social Security until 70 and still need to address Medicare around age 65.
Depending on your employment and health insurance situation, delaying Medicare enrollment when you are first eligible could result in late-enrollment penalties or gaps in coverage.
This is one of the most important details retirees can miss when building a Social Security bridge.
Other Insurance to Consider
A successful retirement-income plan should protect more than your Social Security claiming strategy.
Long-term care insurance or hybrid life and long-term care coverage can help protect retirement assets from extended care expenses.
Medicare Supplement or Medicare Advantage coverage can help address healthcare costs after Medicare eligibility.
Life insurance may be useful when a surviving spouse or other dependent would face an income shortage after your death.
Annuity lifetime-income riders can help protect against longevity risk—the possibility that you live much longer than expected and exhaust your investment portfolio.
The appropriate combination depends on what financial risks you are trying to protect against and which risks you are comfortable keeping yourself.
What We Recommend
Start with your monthly expenses.
Determine exactly how much income you need to maintain your lifestyle. Then subtract Social Security, pensions, rental income, employment income, and other predictable cash flow that will be available at each stage of retirement.
What’s left is your retirement-income gap.
Then compare what it costs to fill that gap using portfolio withdrawals, cash/CDs/Treasuries, short-term fixed annuities, a fixed indexed annuity with guaranteed lifetime income, an accelerated or front-loaded annuity payout, retirement-account withdrawals, Roth assets, pension income, part-time employment, or home equity.
For many retirees, the best solution will be a combination.
You may use an annuity to guarantee enough income to cover essential expenses, investments for long-term growth and liquidity, and Social Security beginning later to create an additional lifetime income stream.
That creates layers of retirement income instead of relying on one account to do everything.
Compare Your Social Security Income-Bridge Options
The amount of money required to bridge Social Security can vary dramatically depending on your age, retirement savings, marital status, desired income, and when you want Social Security to begin.
At The Annuity Expert, we’re an independent annuity broker and insurance agency. We can compare fixed annuities, fixed indexed annuities, guaranteed lifetime income options, accelerated-income strategies, and Social Security bridge designs from multiple insurance companies.
Contact The Annuity Expert for free quotes and a no-obligation comparison to determine how much retirement savings may be required to generate the income you need before and after Social Security begins.
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