Good to Know

Age 66 Monthly Retirement

$24,000 annual benefit

Age 70 Monthly Retirement

$31,680 Annual Benefit

Which benefit would you choose? Getting more sounds great but there are two challenges that must be conquered:

Challenges #1: Bridging the income gap
  • We called this "making the peanut butter and the jelly come out even" in the teaser from our last blog.
  • If you’d like to retire at your normal retirement age (65 to 67 depending upon birth year), there’s a challenge.
  • Assuming an age 66 normal retirement age, the client challenge is “How do I eat from age 66 until age 70?”
#2: "Lost benefits" during the delay period
  • You will not receive retirement benefits from your normal retirement age until age 70.
  • How long does it take to get that “lost” money back?

We’ll begin by addressing the income gap.


How can you bridge the income gap (i.e., eat while you’re waiting) from your normal retirement age until age 70? Consider these strategies:

Work part-time in retirement

  • You’re heard this one before, but what you may not have heard is that working part-time may be good for more than your bank account.
  • A study by the University of Oregon concluded that working part-time in retirement literally adds years to your life and, according to a separate study, promotes mental health (reduces depression over loss of job-identity) and bolsters physical health, resulting in a better quality of life.
  • As a financial bonus, healthy retirees tend to spend less on medical bills.

Use the cash value from unneeded life insurance policies

  • If working part-time doesn’t completely address the income gap and you no longer have a need for life insurance coverage, look at a partial withdrawal or complete surrender of a life insurance policy for its cash value.
  • As little as $40,000 in cash value from your life insurance policy can provide an annuity of about $1,000 monthly from age 66 to age 70.
  • Consult your insurance professional and tax advisor before choosing this strategy. The exchange of a life insurance policy for an annuity2 is generally not taxed at the exchange date, but subsequent annuity payments to you will be partially included in your total income.

Use tax-free gains from downsizing your residence

  • If there’s still an income gap and you’d consider downsizing, sell the house and take the tax-free gains.3
  • After buying the new, smaller home, use the remaining gains to bridge the income gap.

Reverse mortgage

  • Hopefully, some combination of the above has filled the income gap. If not, a reverse mortgage could be a solution.
  • A reverse mortgage should not be Plan A in your retirement strategy; this is what you may consider when Plan A fails.
  • As a Plan B, a reverse mortgage can be a powerful (if expensive) way to bridge the income gap
    • Why expensive? Reverse mortgages are true mortgages with all of the closing costs, broker commissions and administrative fees that entails.
  • Not everyone qualifies for a reverse mortgage. Your home must be substantially paid for and you must be at least age 62.4 You may receive an income stream or lump sum from a reverse mortgage.
  • The bank pays you. Generally, no repayments from you to the bank are required during your lifetime. The bank generally recovers its money through the sale of the home after your death.

Work Another Year of So Full-Time


If all else fails, you might be wise to work full-time another year or more before claiming Social Security Retirement benefits.

Two good things may happen to your money when you do that.

  • Additional savings from the job
  • Fewer years to fund the delay period

In a spirit of transparency when bridging the income gap, we feel compelled to discuss one more possibility – the Nuclear Option.

The Nuclear Option

  • You may take short-term distributions from your employer-sponsored retirement plan (401(k) for example) or IRA during the delay period.
  • This strategy should NOT be chosen lightly. Discuss this step thoroughly with your financial advisor – you may need the assets and their growth in the future.
  • Any tax implications should be part of the decision-making process.


The second issue is breakeven age. Specifically, if you choose to delay claiming Social Security Retirement benefits from age 66 through age 70, how long must you live AFTER age 70 to break even financially? This calculation can become quite complex and is out of scope for this blog, but we’ll share general guidance.

  • Delayed retirement may not be a great idea if your parents died young or you have health issues that could shorten your life expectancy.
  • Life expectances are about 81 years for women and 76 for men. But be careful before taking those ages as gospel – these are life expectancies at birth.
    • Actuaries tell us that the longer we live the more likely we are to live even longer. For example, Social Security reports that one in three people who reach age 65 will live until about age 95.
  • Although the breakeven age varies by the facts and circumstances of an individual’s situation, a common range estimated by financial analysts is about 15 to about 20 years.

What exactly does a 15-year breakeven mean? If you delay claiming until age 70, you must live until age 85 to recover the benefits lost in the years you delayed claiming.

No discussion of delayed claiming would be complete without illuminating the potential good financial news for the surviving spouse of the worker.

The Good Financial News for Spouses of Workers Choosing to Delay Claiming

We learned in a previous blog that the spouse of a covered worker receives the higher of their own retirement benefit or up to 50% of the covered worker’s retirement benefit. Generally, when a covered worker dies, the spouse receives a survivor’s benefit of 100% of the covered worker’s current month’s retirement benefit.

For example, assume Hansel and Gretel are married.

  • Gretel was the primary wage-earner and Hansel worked only part-time during his lifetime.
  • Gretel delayed claiming Social Security Retirement benefits until her age 70 and she is now, at her age 70, receiving $2,700 monthly.
  • Hansel is receiving a spousal retirement benefit of $1,100 per month.5
  • When Gretel dies, Hansel’s spousal retirement benefit will cease, and he will receive an inflation-adjusted monthly survivorship benefit of $2,700 for the rest of his life.
bottom-line-img Getting a raise of up to about 1/3 of your normal Social Security Retirement benefit is tempting. Be sure that your life expectancy justifies giving up normal benefit payments during the delay period. Plan carefully how you will generate the cash flow needed to pay living expenses during the delay period.


This blog is presented for educational purposes only; it should not be used to make financial decisions. This information should be used to spark discussions between you and your financial advisor. If you are a financial advisor, check with your compliance team before making any representations to clients in these matters.

1 The dollar amounts used in the checks above are estimates for illustration. While actual benefit amounts will differ, the big bonus from waiting until age 70 to claim will generally remain dramatic.

2 Assumes a nonqualified annuity, i.e., an annuity purchased outside of a qualified retirement plan.

3 The tax requirements are out of scope for this blog, but generally one spouse must have owned the residence in 2 of the 5 years preceding the sale. Both spouses must have occupied the home for 2 of the 5 years before the sale. Up to $500,000 in qualifying gains for a married filing jointly couple may be income tax-free.

4 Other requirements apply. Consult your financial advisor.

5 Hansel’s spousal benefit is 50% of Gretel’s retirement benefit at her full retirement age, not 50% of Gretel’s delayed retirement benefit at her age 70.