Bridging Strategies: Income Between Early Retirement and Social Security

Overview

Retiring before you claim Social Security creates a cash‑flow gap that requires intentional planning. Social Security retirement benefits are available as early as age 62, but claiming early reduces your monthly benefit; your full retirement age (FRA) depends on your birth year and is typically 66–67 for most near‑retirees (see the Social Security Administration for current rules) (Social Security Administration, https://www.ssa.gov/).

Bridging strategies give you several ways to cover living expenses without undermining long‑term retirement security. In my practice over 15 years I’ve found that a blended approach—using taxable savings, tax‑deferred accounts, limited part‑time work, and targeted insurance products—works best for most households because it spreads risk across taxes, markets, and longevity.

Why a strategy matters

• Claiming Social Security at 62 can permanently reduce benefits compared with waiting until FRA or age 70. (SSA: https://www.ssa.gov/benefits/retirement/)
• Withdrawals from tax‑deferred accounts before 59½ may incur a 10% early withdrawal penalty unless an exception applies. (IRS: Tax on Early Distributions, https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions)
• Medicare eligibility at 65 creates a separate timing milestone; many early retirees still need to secure health coverage before Medicare begins.

Given these constraints, a reliable bridging plan reduces the chance you’ll need to take large, poorly‑timed withdrawals that increase taxes, raise Medicare premiums (IRMAA), or shrink future guaranteed income.

Core bridging strategies (what they are and when to use them)

1. Taxable account withdrawals

• Use liquid brokerage or savings accounts first because withdrawals don’t trigger penalties and are taxed only on gains. This preserves tax‑deferred accounts for later or for tax planning via Roth conversions.
• Best when you have at least 2–5 years of living expenses in taxable assets.

1. Roth conversions

• Convert portions of traditional IRAs or 401(k) funds to Roth IRAs in low‑income years. You pay ordinary income tax on the converted amount now to create tax‑free withdrawals later.
• Roth IRAs have no required minimum distributions (RMDs) and qualified withdrawals are tax‑free—helpful for reducing taxes and smoothing future Social Security benefit taxation.
• Be mindful of Medicare IRMAA and tax‑bracket thresholds when sizing conversions (IRS guidance on rollovers and conversions: https://www.irs.gov/retirement-plans/roth-iras).

1. Systematic withdrawals from tax‑deferred accounts

• If you must take money from an IRA/401(k) before 59½ consider options that avoid the 10% penalty: substantially equal periodic payments (SEPP, also called 72(t)), or exceptions allowed by the IRS.
• SEPP/72(t) requires a fixed schedule for at least five years or until age 59½—get professional help; mistakes can be costly (IRS guidance: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions).

1. Part‑time work or gig income

• Working part‑time or consulting fills cash flow without touching principal. It can also preserve health‑care subsidies or delay claiming Social Security, increasing your future monthly benefit.
• Consider whether earnings will affect Social Security benefit withholding if claiming early (see SSA for earnings limits).

1. Deferred income annuities or longevity insurance

• A deferred income annuity (DIA) bought at retirement that starts payments at a future date (e.g., age 70) can create a guaranteed income bridge for later life.
• Use annuities cautiously: fees, liquidity limits, and counterparty risk vary. Review offers and consider consumer protection resources (Consumer Financial Protection Bureau: https://www.consumerfinance.gov/consumer-tools/annuities/).

1. Short‑term bond ladders and cash cushions

• Holding 2–7 years of living expenses in short‑term bonds or a CD ladder reduces sequence‑of‑returns risk and prevents forced selling during market downturns.

Sequencing withdrawals: a common framework

A widely used withdrawal sequence minimizes taxes and penalties while giving flexibility:

1. Taxable accounts (capital gains/tax‑loss harvesting benefits)
2. Tax‑deferred accounts (traditional IRA/401(k)) using conservative withdrawals or SEPP if required
3. Roth accounts (tax‑free; leave for later unless needed)
4. Annuities or guaranteed income products as a last resort or for longevity protection

This sequence is not one‑size‑fits‑all. For example, households with high future tax prospects may accelerate Roth conversions earlier, even if it increases taxable income in the short term.

Tax and benefits interactions to watch

• Early Social Security claiming reduces your benefit forever; delaying increases monthly payments and survivor benefits. Use SSA calculators and the official site to model claiming ages (Social Security Administration).
• Withdrawals that increase your adjusted gross income may raise the portion of Social Security subject to tax and trigger higher Medicare Part B/D premiums (IRMAA). Plan conversions and withdrawals with those interactions in mind (IRS and SSA guidance).
• The 10% early withdrawal penalty applies to many qualified retirement accounts if distributed before 59½ unless you meet a specific exception (see the IRS for exceptions and details).

Real‑world example (simplified)

Couple, ages 58 and 59, target retirement spending $60,000 per year before Social Security. They have:

• $200,000 in taxable brokerage (long‑term gains basis mixed)
• $800,000 in combined IRAs/401(k)s
• Social Security delayed until 67 for higher benefits

Approach:

• Maintain a 3‑year cash/bond cushion ($180k) including some portion of taxable account and 1‑2 years of living expenses in cash.
• Spend $40k/year from taxable accounts for the first 3–4 years while performing partial Roth conversions of $20k–$40k in low‑income years to “fill” tax brackets and reduce future RMDs.
• Consider modest part‑time consulting to earn $15k–$20k/year if markets drop and taxable assets are depleted.
• At age 62–65 evaluate claiming Social Security vs. continued withdrawals using an SSA benefit projection.

This type of plan blends liquidity, tax management, and optional income. In practice, I run multiple scenarios for clients to see how market returns, longevity, and taxes change outcomes.

Pros, cons and common pitfalls

Pros:

• Keeps options open: liquidity and tax control
• Avoids permanently reduced Social Security benefits by delaying claims when possible
• Reduces sequence‑of‑returns risk with cash and bonds

Cons:

• Mistimed Roth conversions or large withdrawals can increase taxes and Medicare surcharges
• Annuities reduce liquidity and can carry high fees if not selected carefully
• SEPP/72(t) mistakes are irrevocable and may lead to penalties

Common mistakes I see:

• Using up all taxable savings and then withdrawing from tax‑deferred accounts at a high tax rate
• Ignoring Medicare enrollment timing and healthcare costs between retirement and age 65
• Overreliance on optimistic market returns without a guarded cash cushion

Tools and resources

• Social Security official calculators and benefit planners (Social Security Administration: https://www.ssa.gov/)
• IRS guidance on early distributions, Roth conversions, and SEPP/72(t) (IRS: https://www.irs.gov/)
• Consumer guidance on annuities (CFPB: https://www.consumerfinance.gov/consumer-tools/annuities/)

If you want deeper reading on coordinating withdrawals with Social Security and optimizing your claim age, see FinHelp’s guides on How to Coordinate Social Security and Retirement Account Withdrawals and Maximizing Social Security Benefits.

Action steps to build a bridge

1. Itemize expected expenses and develop a 3–7 year cash plan.
2. Run Social Security benefit projections for different claiming ages.
3. Model withdrawal sequences and Roth conversion strategies with tax‑bracket awareness.
4. Consider a small annuity or DIA only after comparing costs and guarantees.
5. Revisit your plan annually and after major life or market events.

Professional disclaimer

This article is educational and does not constitute individualized financial, tax, or legal advice. Rules for Social Security, taxes, Medicare, and retirement accounts change; consult the Social Security Administration, IRS guidance, and a qualified financial planner or tax professional before implementing any strategy.

References

• Social Security Administration: Retirement Benefits and calculators (https://www.ssa.gov/)
• IRS: Tax on Early Distributions; Roth IRAs; Rollovers (https://www.irs.gov/)
• Consumer Financial Protection Bureau: Annuities information (https://www.consumerfinance.gov/consumer-tools/annuities/)