Retirees can delay the start of Social Security benefits to help them cope with inflation, avoid bad […]

Retirees can delay the start of Social Security benefits to help them cope with inflation, avoid bad investment markets, and lower the chance of running out of money. Financial planners recommend that clients delay claiming Social Security benefits because of the many advantages.

According to a Boston College study, employers could offer a similar “bridge strategy” as part of their 401(k), or other workplace retirement plans. To pay roughly the amount of Social Security checks forgone, the bridge strategy taps a worker’s retirement accounts.

These bridges can be built by anyone. For example, if Social Security estimates that your monthly benefit at age 62 will amount to $1,500 per month, you can set up automatic monthly withdrawals from your 401(k). At retirement, this amount could be taken out of your 401(k). Gal Wettstein, senior economist at the center and coauthor of the study, said that having the option offered by an employer could make it easier and encourage people to delay.

There are many benefits to waiting

Retirees find the social security benefits extremely valuable. The benefits are adjusted each year for inflation. They can’t be depleted due to bad markets, poor investing decisions, or bad luck, unlike retirement savings.

Social security retirement benefits can be claimed by anyone between the ages of 62 and 70. You will typically receive a reduced benefit if you start before your full retirement age (currently between 66-67). Retaining your full retirement age after you reach 70 increases your retirement benefits by 8% per year.

Wettstein states that a higher monthly benefit will mean you have more income for the rest of you life.

(By the by: Social security benefits start earning inflation adjustments at age 62 regardless of whether you have started receiving them. According to the Social Security Administration. If you are able to wait, the 8.7% increase in cost of living next year is not a reason to rush your application. )

Many people still claim too early

Research has proven that it is better to wait until you can claim Social Security. The higher earner of a married couple should delay, as that benefit will determine what the survivor receives after the death of the first spouse.

Economists from Boston University and the Federal Reserve found that nearly all U.S. workers between 45 and 62 should wait to claim benefits beyond 65. 90% should wait until 70. However, only 10% of Americans do this at present. The economists concluded that claiming too soon will result in a loss of $182,000 in discretionary spending over the lifetime of the average worker.

According to the Social Security Administration, the average age at which a person can claim their benefits increased between 2008 and 2018, rising from 63.6 to 64.7 and 63.6 to 64.6 respectively. The majority of people claim their benefits after reaching full retirement age. This means that their benefits will be permanently reduced.

Very few retirement plans offer payout strategies

Wettstein points out that while many employers offer match funds to encourage retirement savings, few companies provide payout strategies for those who are ready to retire. A few companies offer the option of annuitizing, which is the transfer of some or all the account balance to an insurance company for a guaranteed stream.

Wettstein points out that most people don’t like the idea giving up large chunks of their savings. The employer-provided bridge was presented by Wettstein to a nationally representative sample consisting of 1,349 individuals between 50 and 65, who were not yet retired but had at least $25,000 in their retirement accounts. Participants could use up to half their retirement account balances as Social Security checks replacements while delaying claiming.

Researchers found that a “substantial minority of respondents” would use the strategy, if it was offered to them. A little over 27% of participants who were given a brief explanation of the strategy said they would use them. Participants were more likely to be willing to use the strategy if they were provided with more details. 35% of those who received the most detailed explanation said that they would use it. A third of those surveyed said that they would not opt out if the employer made the bridge strategy their default choice.

Wettstein states that, to his knowledge, no employer offers a bridge strategy. However, he hopes that the research will encourage others to look into it. He says that it is difficult enough to figure out when to claim Social Security, let alone how and when to tap retirement savings funds. Many workers could be able to wait more easily with an employer-provided bridge strategy.

Wettstein states that if everything is laid out in an easy way, it is certainly attractive.

This article was written and published originally by The Associated Press by NerdWallet.