Some retired clients seeking to delay claiming Social Security benefits until they’re eligible for the maximum are open to building a so-called bridge through their 401(k)s, a new study says.
A “substantial minority would be interested in the bridge option,” using withdrawals from their employer-sponsored retirement plans to replicate their future monthly Social Security benefit checks until they reach the maximum claiming age of 70,
With
There’s “no formal link, except for the earnings test, which is widely misunderstood,” said Wettstein, referring to the
“The vast majority of people do claim when they stop working, and we've long advocated for working longer for people who can do it,” Wettstein, a senior research economist with the center, said in an interview. “If you aren't going to work longer, at least you can get more of your Social Security benefits if you delay claiming.”
The results
The Center’s analysis stems from a survey it commissioned among 1,349 participants last July in an AmeriSpeak panel led by NORC at the University of Chicago. The researchers divided the respondents into four categories: a control group given very little information about the bridge strategy; an “insurance framing” group that also received very little detail in the course of questions describing Social Security as a “lifetime income account” and a 401(k) as a “wealth account”; an “additional information” group that got much more guidance about the bridge than either of the other two groups; and a “default” group who were told how much of their 401(k) would be allocated automatically, then asked whether they wanted to use the strategy.
Here are the main findings:
- The additional information group showed the highest rates of approval for using the bridge, followed by the insurance framing, default and control categories.
- At 35.6%, the default respondents who opted to keep the strategy in place allotted the largest share of 401(k) assets into their bridge, with lower amounts among the insurance framing (19.8%), additional information (15.6%) and control (14.9%) groups.
- The default group ($475) had the largest jump to their projected monthly benefits under statistical assumptions about their use of the 401(k) bridge, compared to lesser amounts in the insurance framing ($368), additional information ($281) and control ($272).
The survey found a relationship between the amount of information provided about the bridge and the respondents’ choices.
“Individuals presented with the pros and cons of annuitization versus investment chose to allocate a small but meaningfully larger share of their assets to the bridge strategy. More strikingly, those defaulted into the bridge option ended up allocating much more of their assets to the bridge,” the study concluded. “If borne out in reality, these benefit increases would contribute to retirement security by giving retirees additional guaranteed income for the rest of their lives.”
Client conversations
Discussions about when to claim Social Security benefits and how best to delay it take place in advisory practices across the country every day, according to Michael Robinson, co-founder of The Blueprint Insurance Services, a third-party marketing organization that works with RIAs and other comprehensive advisors. Lockton Affinity, a program administrator whose parent is the world’s largest independent insurance brokerage,
“They can then have that guaranteed income for a portion of their assets, so they don't have to worry about market volatility,” he said, noting that “these client solutions are out there” for qualified, pre-tax accounts such as 401(k)’s and traditional IRAs and non-qualified, post-tax accounts like a Roth.
The timing of Social Security benefits represents “a very personal decision” where one person’s choice may not make sense for another, according to Robert Stevens, a financial planning strategist with TIAA. The factors include age, employment and health status and whether a retiree has a spouse. With respect to the bridge idea, the advantages of avoiding economic uncertainty should weigh against the downsides of potential tax implications, Stevens said, agreeing with the central takeaways of the Center’s study.
“Advisors can do their clients a big favor by de-emphasizing the link between the employment termination date and claiming Social Security. Many clients follow this ‘strategy’ only because that is what they have observed friends and acquaintances do,” Stevens said in an email. “Framing can play a role. Phrases such as ‘buying more Social Security’ or ‘buying a higher Social Security benefit’ may sound more appealing than ‘delaying your Social Security claim.’”
The researchers with the Center plan to explore some of those questions through follow-up studies into the default option for a bridge strategy testing the “true costs” and “hard choices, time and effort” involved with the decision, according to the study. The results of the initial survey showed promise for advocates of the bridge method, said Wettstein.
“This is the first time that people would have ever heard of this notion,” he said. “We thought the level of interest was good. And the more they learned about it, the more likely they were to say they would use it. If more people were familiar with the notion, there would be more interest.”
