Should clients drawdown retire- ment savings first, as a “bridge” to delay taking Social Securityuntil age 70?
While this idea has been around forsome time, a recent study by the Centerfor Retirement Research at BostonCollege (CRR) looked at taking automatic withdraws from 401(k) plansfrom ages 60–69 before touching SocialSecurity benefits.
The study — How Best to AnnuitizeDefined Contribution Assets — byCRR Director Alicia H. Munnell, aswell as researchers Gal Wettstein and
401(k) withdraw plan to using some
of that money to buy immediate and
deferred annuities.
The research aimed to find a strategy to set withdrawals from retirementsavings so people don’t outlive theirresources. It also found only 5% of menand 7% of women wait until age 70 totake Social Security.
Also, it found just 23% of men and 16%of women wait until their full retirementage (or FRA). A large number — 35% ofmen and 39% of women — begin takingSocial Security at age 62, which cutstheir benefit dramatically. It is estimatedthat claims taken at age 70 are 76%higher than those taken at 62.
Thus, the study looked at how using
401(k) plans as default payments forthose 60-69 could equal what theywould be getting if they were takingSocial Security at the FRA.
“The expectation is that providing atemporary stream of income to replacethe Social Security benefit would breakthe link between retiring and claiming,”the authors stated.
Comparing this strategy to immediate and deferred annuities, theyfound the 401(k) drawdown plan was“the clear winner,” at least for medianhouseholds; the success overall is tiedto wealth distribution.
For higher-wealth households, “thedeferred annuity strategy is again competitive, edging out the Social Securitybridge options,” the authors said.
However, depending on requiredminimum distributions that hit at age72, “the deferred annuity remains avery poor choice, for both median- and75th percentile wealth households,” thestudy found.
EXPERT REVIEW
Both Michael Finke, professor ofwealth management at The AmericanCollege of Financial Services, and DavidBlanchett, Morningstar’s head of retirement research, support delaying takingSocial Security benefits.
Do 401(k) ‘Bridges’ Help Retirees Maximize
Social Security?
Also, a look at current retirement trends and how COVID- 19 has affectedsavings for women.
Conclusions
RETIREMENT PLANNINGBy Ginger Szala
bbay/Shutterstock
