## Mechanics of Social Security Bridge?

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Topic Author
jaMichael
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### Mechanics of Social Security Bridge?

I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
2pedals
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### Re: Mechanics of Social Security Bridge?

I think it is highly individual. Should be based on how much you want to spend each year (expenses - income).
Mike Scott
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### Re: Mechanics of Social Security Bridge?

It needs to be enough to cover your ongoing budget minus any other income you might have.
Johm221122
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### Re: Mechanics of Social Security Bridge?

I'm using B

My social security estimate at 70
So 96 times your benefits at 70

Actually I'd use a 100 months just for a little cushion.
TheHiker
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### Re: Mechanics of Social Security Bridge?

Depends on how you plan to use the bridge.
E.g. if in your retirement budget you count on 4400 guaranteed income then you set aside 4400x96 in cash to bridge the gap. I.e. (b).
SquawkIdent
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### Re: Mechanics of Social Security Bridge?

C

My bridge would start with that ending amount at age 70, which in your case is \$4400.

Take that amount and subtract 3% and that would be your bridge amount for age 69. Then take that amount and subtract 3% for age 68 and so on down to your retirement age. Make sense?

You could use any “inflation” increase for each year (or none at all).

I chose 3% to make sure I’ll have enough cash for the “go go years”. And it’s a gradual increase (and hopefully keeping up with inflation) to that ending number at age 70.
ehh
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### Re: Mechanics of Social Security Bridge?

jaMichael wrote: Sun Feb 11, 2024 10:45 am I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
Chapter 14 of Social Security Made Simple by Mike Piper uses option (b).

If your expected expenses are \$8,000 per month:

The bridge (or safe) portfolio needs to finance \$4,400 per month for 8 years.

The long-term portfolio needs to finance \$3,600 per month starting immediately and lasting for the remainder of your life.
02nz
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### Re: Mechanics of Social Security Bridge?

The point of the Social Security "bridge" isn't to replace Social Security benefits that you defer; it's to meet your living expenses. That should be your starting point.
Raspberry-503
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### Re: Mechanics of Social Security Bridge?

SquawkIdent wrote: Sun Feb 11, 2024 11:12 am C

My bridge would start with that ending amount at age 70, which in your case is \$4400.

Take that amount and subtract 3% and that would be your bridge amount for age 69. Then take that amount and subtract 3% for age 68 and so on down to your retirement age. Make sense?

You could use any “inflation” increase for each year (or none at all).

I chose 3% to make sure I’ll have enough cash for the “go go years”. And it’s a gradual increase (and hopefully keeping up with inflation) to that ending number at age 70.
Are the \$2400/\$4400 expressed in today \$? One in age 63 dollars and the other age 70 dollars? (It seems like it given their ratio).

Unless you use TIPS (or iBonds) for the bridge, which automatically adjust for inflation you will need to account for inflation in your calculations.

The way I chose to do it was to match my age 70 SS for the duration of the gap. So for a 9-year gap, if my age 70 SS were \$4000 in today's dollars, I'd buy a TIPS ladder deliver \$4000 per year. I'd don't have to worry about Inflation that \$4000 will automatically be adjusted by the actual inflation. Because TIPS have an Interest rate above inflation, the actual amount to buy is less than 9x\$4000 for a 9-year ladder
Topic Author
jaMichael
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Joined: Sun Mar 12, 2023 12:23 am

### Re: Mechanics of Social Security Bridge?

SquawkIdent wrote: Sun Feb 11, 2024 11:12 am C

My bridge would start with that ending amount at age 70, which in your case is \$4400.

Take that amount and subtract 3% and that would be your bridge amount for age 69. Then take that amount and subtract 3% for age 68 and so on down to your retirement age. Make sense?

You could use any “inflation” increase for each year (or none at all).

I chose 3% to make sure I’ll have enough cash for the “go go years”. And it’s a gradual increase (and hopefully keeping up with inflation) to that ending number at age 70.
Hmm. So it sounds like (a) (\$2400 x 96) would make sense if I’m just trying to cover the cost of the deferral and not trying to maintain steady real income and that (c) (\$4400 discounted for inflation (or about \$3400 x 96)) would make sense if I’m trying to maintain steady real income.

In my case, the goal is really just covering the cost of deferral, because what I’m really trying to do is to figure out how much buying a higher SS benefit thru deferral should affect my ultimate stock-bond allocation. If I would be comfortable with a 60/40 stock-bond allocation (\$1.5 million stocks and \$1 million bonds) and a \$2400 SS benefit, then I should be at least as happy with a 66/34 stock-bond allocation (\$1.5 million stocks and \$770,000 bonds [\$1 million minus the \$230,000 bridge]) and a \$4400 SS benefit. The extra risk of the higher stock/bond ratio is offset by the additional safety of the higher SS benefit. That’s the theory, anyway.
skipper
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### Re: Mechanics of Social Security Bridge?

ehh wrote: Sun Feb 11, 2024 11:27 am
jaMichael wrote: Sun Feb 11, 2024 10:45 am I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
Chapter 14 of Social Security Made Simple by Mike Piper uses option (b).

If your expected expenses are \$8,000 per month:

The bridge (or safe) portfolio needs to finance \$4,400 per month for 8 years.

The long-term portfolio needs to finance \$3,600 per month starting immediately and lasting for the remainder of your life.
My answer/reading is the same. The bridge is \$422,400 put into a "safe", interest bearing vehicle such as CDs, bonds, ladders of either, etc. to mimic what SS will provide when it starts at 70. You make up the difference in spending needs from the portfolio. So if expenses are \$6000/mo, 4400 is pulled from the safe SS zone and 1600 is pulled from the portfolio. This reduces (not eliminates) risk until the more stable SS income stream kicks in. It does matter what your expenses are, though. If your expenses are only \$2000/mo, you don't need to bridge to a higher amount just because it's an income stream. Expenses are key.
by Hyperchicken » Tue Feb 13, 2024 2:28 pm | | ... Dang. That rat and pellet thing is pretty depressing. | Guess I better get back to work.
Elysium
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### Re: Mechanics of Social Security Bridge?

jaMichael wrote: Sun Feb 11, 2024 10:45 am I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
You can get there in many ways, but to me the simplest and easiest, the one I intend to use is (b) + (c).

Basically take the entire funding liability you have each year from age 62 when you retire, then see how you would fund it, and deduct SS from that total at whatever age you wish to draw, 70 in your case or 8 years. So then you need to fund it outside of SS for 8 years, that's it.

For instance, say you need \$100K total each year and SS will provide \$40K at age 70, then you need to fund \$100K x 8 or \$800k for expenses from 62 to 70, adjusted for inflation, so ideally in TIPS. Then at 70 you only need \$60K + you get \$40k in SS, so just need enough portfolio to draw that \$60K.
SquawkIdent
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### Re: Mechanics of Social Security Bridge?

Raspberry-503 wrote: Sun Feb 11, 2024 11:46 am
SquawkIdent wrote: Sun Feb 11, 2024 11:12 am C

My bridge would start with that ending amount at age 70, which in your case is \$4400.

Take that amount and subtract 3% and that would be your bridge amount for age 69. Then take that amount and subtract 3% for age 68 and so on down to your retirement age. Make sense?

You could use any “inflation” increase for each year (or none at all).

I chose 3% to make sure I’ll have enough cash for the “go go years”. And it’s a gradual increase (and hopefully keeping up with inflation) to that ending number at age 70.
Are the \$2400/\$4400 expressed in today \$? One in age 63 dollars and the other age 70 dollars? (It seems like it given their ratio).

Unless you use TIPS (or iBonds) for the bridge, which automatically adjust for inflation you will need to account for inflation in your calculations.

The way I chose to do it was to match my age 70 SS for the duration of the gap. So for a 9-year gap, if my age 70 SS were \$4000 in today's dollars, I'd buy a TIPS ladder deliver \$4000 per year. I'd don't have to worry about Inflation that \$4000 will automatically be adjusted by the actual inflation. Because TIPS have an Interest rate above inflation, the actual amount to buy is less than 9x\$4000 for a 9-year ladder
Yes, those figures were expressed in today’s \$\$.

I’m using my 3% increase to aid in inflation protection. My sim is to get close to the inflation rate but not a guarantee. Using safe assets, I can get close. It’s still more \$\$ coming in than if I just took it earlier.

Again…many roads to Dublin in this example. Getting close is good enough for me.
Kenkat
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### Re: Mechanics of Social Security Bridge?

I approached this problem by taking my expenses required per year times the number of years until I reach age 70. That became the amount I needed to fund with my bridge portfolio. I segregated that amount into a separate portfolio invested at a target 30/70 allocation to fund the bridge portfolio. The plan is to exhaust the bridge portfolio. The remaining portfolio is my growth portfolio, invested at 70/30.

When I reach age 70, social security will cover about 75% of my expected expenses. The growth portfolio will be more than sufficient to cover the remaining 25%, equating to a 1-2% withdraw rate after age 70.
SquawkIdent
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### Re: Mechanics of Social Security Bridge?

jaMichael wrote: Sun Feb 11, 2024 11:53 am
SquawkIdent wrote: Sun Feb 11, 2024 11:12 am C

My bridge would start with that ending amount at age 70, which in your case is \$4400.

Take that amount and subtract 3% and that would be your bridge amount for age 69. Then take that amount and subtract 3% for age 68 and so on down to your retirement age. Make sense?

You could use any “inflation” increase for each year (or none at all).

I chose 3% to make sure I’ll have enough cash for the “go go years”. And it’s a gradual increase (and hopefully keeping up with inflation) to that ending number at age 70.
Hmm. So it sounds like (a) (\$2400 x 96) would make sense if I’m just trying to cover the cost of the deferral and not trying to maintain steady real income and that (c) (\$4400 discounted for inflation (or about \$3400 x 96)) would make sense if I’m trying to maintain steady real income.

In my case, the goal is really just covering the cost of deferral, because what I’m really trying to do is to figure out how much buying a higher SS benefit thru deferral should affect my ultimate stock-bond allocation. If I would be comfortable with a 60/40 stock-bond allocation (\$1.5 million stocks and \$1 million bonds) and a \$2400 SS benefit, then I should be at least as happy with a 66/34 stock-bond allocation (\$1.5 million stocks and \$770,000 bonds [\$1 million minus the \$230,000 bridge]) and a \$4400 SS benefit. The extra risk of the higher stock/bond ratio is offset by the additional safety of the higher SS benefit. That’s the theory, anyway.
Real steady income (like getting a SS check every month) is my goal in this bridge account. One more leg of the stool but it’s an important one. Trying to simulate getting that check before I actually file for that much higher amount later.
Johm221122
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### Re: Mechanics of Social Security Bridge?

viewtopic.php?t=102609

For anyone who hasn't read it (it's one thread I'll never forget)
teen persuasion
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### Re: Mechanics of Social Security Bridge?

Johm221122 wrote: Sun Feb 11, 2024 12:29 pm This is a very popular thread about a Social Security bridge

viewtopic.php?t=102609

For anyone who hasn't read it (it's one thread I'll never forget)
This is exactly how I plan to delay SS to 70. We just have another period before 62 to complicate things, while I have part time income and youngest is in college (FAFSA and EITC income limitations to plan around).

Also, I'm not using our combined SS at age 70, I'm using only the higher earner's SS benefit. At some point in the future one of us will pass away, and the survivor will have only the one SS payment. I'd rather budget based on the lower income and treat the extra SS payment as bonus, than budget based on the max combined and have the survivor facing reduced income at the worst time. Also a hedge if SS payments are reduced in future.
22twain
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### Re: Mechanics of Social Security Bridge?

When I retired at 63, seven years ago, I figured that if I delayed SS until 70, it would cover all my expenses at that point (more precisely, my share of our combined expenses), unless of course "stuff happened" in the meantime. As part of my retirement package, I had enough deferred compensation to cover about a year's expenses, so I had to cover six years of expenses until SS.

At that time, I had a chunk of Total Bond Market, about 20% of my total, amounting to about 10-11 years of expenses (at that time). So I simply started collecting the dividends and selling shares.

Now, even after inflation increasing my expenses and the recent "Bondmageddon" decimating my stash of Total Bond Market, it still contains about four years of expenses. And my SS is still on track to cover my expenses at this point. My first SS deposit is scheduled to arrive on Wednesday.
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
walkindude
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### Re: Mechanics of Social Security Bridge?

22twain wrote: Mon Feb 12, 2024 6:50 am When I retired at 63, seven years ago, I figured that if I delayed SS until 70, it would cover all my expenses at that point (more precisely, my share of our combined expenses), unless of course "stuff happened" in the meantime. As part of my retirement package, I had enough deferred compensation to cover about a year's expenses, so I had to cover six years of expenses until SS.

At that time, I had a chunk of Total Bond Market, about 20% of my total, amounting to about 10-11 years of expenses (at that time). So I simply started collecting the dividends and selling shares.

Now, even after inflation increasing my expenses and the recent "Bondmageddon" decimating my stash of Total Bond Market, it still contains about four years of expenses. And my SS is still on track to cover my expenses at this point. My first SS deposit is scheduled to arrive on Wednesday.
Congratulations - no more bridge for you!
Elysium
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### Re: Mechanics of Social Security Bridge?

Kenkat wrote: Sun Feb 11, 2024 12:26 pm I approached this problem by taking my expenses required per year times the number of years until I reach age 70. That became the amount I needed to fund with my bridge portfolio. I segregated that amount into a separate portfolio invested at a target 30/70 allocation to fund the bridge portfolio. The plan is to exhaust the bridge portfolio. The remaining portfolio is my growth portfolio, invested at 70/30.

When I reach age 70, social security will cover about 75% of my expected expenses. The growth portfolio will be more than sufficient to cover the remaining 25%, equating to a 1-2% withdraw rate after age 70.
This is exactly what I am suggesting and my intended approach as well except I split the spend portion into a bond tent ideally with TIPS. There is advantage to splitting like this compared to the other approaches mentioned here IMO. The obvious one is by separating funding liabilities into two different portfolio mixes you get to leave alone the growth portfolio with a more aggressive allocation since it has a longer time frame. Although in effect the combined portfolio allocation may get to same stocks/bonds ratio or even more conservative, from a withdrawal perspective the bucket approach provides a higher safety net. The growth portfolio will have chance to grow more and thus may end up with higher balance than had it be kept as one. The bond tent approach I plan to use will also offer a guaranteed safety net with higher withdrawal than if kept as one.
humblecoder
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### Re: Mechanics of Social Security Bridge?

jaMichael wrote: Sun Feb 11, 2024 10:45 am I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
My answer is (c). It depends on how much income you need between 62 and 70. Do you need \$2,400 a month? Do you need \$4,400 a month? Do you need a different amount? I mean, if you only think you need \$3000 a month, then why set aside more? On the other hand, if you need \$5,000 a month, then obviously \$4,400 is too little.

And don't forget about inflation. That \$4,400/month that SSA quoted is based upon today's dollars. By the time you are 70, there will be N number of COLA increases, so that number will be something greater. The same applies to your bridge fund. Setting aside a flat \$X/month for 8 years without taking into account any inflation seems like a plan to fail. Or at least you will need to make sure you invest your fund in TIPS or something that keeps pace with inflation, and then take out the base amount + inflation every month.

Articles that provide these "rules of thumb" only take you so far. They are great as a jumping off point for thinking about your own situation, but you should not rely upon them as gospel. Always "salt to taste" as I am fond of saying.
snic
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### Re: Mechanics of Social Security Bridge?

jaMichael wrote: Sun Feb 11, 2024 10:45 am I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
Neither. Here are two other choices:

c) \$25,000, and live on rice, beans and ramen in a shipping container in Sri Lanka from age 62-70. Then move on up at age 70 and live like most American retirees who have \$4400/month SS income plus a few hundred thousand dollars to a few million in savings.

d) \$2,000,000, and see the world on first class tickets to everywhere, first class accommodations, best wine and restaurants, etc, so that you have \$0 in savings by age 70. Then live on SS for the rest of your life, remembering your swingin' 60s.

These extremes illustrate that the whole basis of the question doesn't make sense. Figure out what you want to do in retirement, estimate how much it will cost, and figure out a strategy for paying for those expenses. Everything depends on the amount of those expenses, not on some arbitrary "bridge fund" number.
Topic Author
jaMichael
Posts: 256
Joined: Sun Mar 12, 2023 12:23 am

### Re: Mechanics of Social Security Bridge?

jaMichael wrote: Sun Feb 11, 2024 10:45 am I’m confused about the mechanics of building a Social Security bridge.

Suppose I want to retire at 62 and begin collecting Social Security at 70 - deferring for 96 months. My benefit if I start collecting at 62 would be \$2400 per month, and my benefit if I start collecting at 70 would be \$4400 per month. Should the amount in my bridge fund be:

(a) 96 x \$2400 = \$230,400;
(b) 96 x \$4400 = \$422,400; or
(c) something else?

Most of the articles I’ve read suggest that (b) is the correct answer, though a few say that (a) is the correct answer. If the theory is that the bridge is simply substituting for the benefits that I would have received if I claimed at 62 (thus covering the cost of deferring), then it seems like (a) makes sense. But that’s not what the articles typically say.
Thank you for all of these helpful responses.

I am convinced that the answer to my initial question is (b). A Social Security bridge should be based on the monthly Social Security benefit I would receive at age 70 times the number of months I will be deferring benefits. The bridge does not replace the money I would have received by claiming at 62 (answer (a)); it augments it, along with creating a consistent income stream pre- and post-70 (answer (b)). See viewtopic.php?t=102609 – (thank you Johm221122)

I am still not sure how building a Social Security bridge should impact my stock-bond allocation. Mike Piper has written: “if you have, for example, decided that filing at 62 and using a 70/30 portfolio is an appropriate level of risk, what about instead filing at 70 and using an 80/20 portfolio? (To be clear, I’m just making up the 80/20 figures here. The actual percentage would depend on the size of your Social Security benefit relative to the size of your portfolio. The idea is to keep the same level of risk, but have more Social Security and less bonds.)” https://obliviousinvestor.com/claiming- ... we-assume/. If my initial portfolio is \$1.5 million stocks and \$1 million bonds and I build a \$400,000 Social Security bridge, should my remaining portfolio be \$1.5 million stocks and \$600,000 bonds? Mr. Piper appears to suggest that this might be the case here, but I may be misunderstanding him: viewtopic.php?t=423163 (Wed. Feb. 7, 2024, 7:02 am Pacific).