Using 401(k) assets to delay Social Security claiming

A fair amount of interest exists for a retirement option in which people would use a portion of their 401(k) assets to delay claiming Social Security benefits, according to a new study by researchers at the Center for Retirement Research at Boston College.

“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,” Alicia Munnell and Gal Wettstein reported in their study released this month.

The so-called bridge option would use 401(k) assets to pay retirees an amount equivalent to their Social Security benefits, allowing them to postpone claiming the benefits, which would increase their monthly payment when they do file.

The research used a survey conducted using the AmeriSpeak panel run by NORC at the University of Chicago. Participants were ages 50-65, not retired and had 401(k) balances of at least $25,000. The survey was conducted online in July 2021 and included 1,349 respondents.

Members of one group were given minimal information about the bridge strategy The researchers reported that 26.8% of that group said they would be interested in using the bridge.

A second group was presented with the pros and cons of using insurance versus investments. A total of 35% of that group expressed interest.

“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,” the researchers said.

They added, “The results here are a first step. While they indicate interest in the bridge strategy and suggest some means of increasing take-up, future work should examine the impact of a default in a more realistic setting.”

They said that the market for annuity products is small, although they have significant benefits.

A Social Security bridge would help people reap the benefits of waiting to claim benefits without having to change their retirement age, they wrote. Employers would distribute payments from their 401(k) equal to the Social Security benefits they would have gotten.

Munnell and Wettstein said that in an attempt to make the process as seamless as possible, the bridge strategy would be the default, with a percentage of an employee’s 401(k) assets automatically allocated to it. They said that a default is much more likely to be maintained by people participating in a plan as opposed to a process that would require them to opt into it.