What Early Retirees Need to Know About Bridging Income Before Social Security Kicks In

Retiring early is a goal many people strive for. And with enough savings, it's something you may be able to pull off.

But early retirement can be a challenge, as you may need to support yourself with savings and investments without Social Security benefits. The earliest age you can claim benefits is 62. And if you don't wait until full retirement age to file, which is 67 if you were born in 1960 or later, your monthly benefits will be reduced.

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The good news is that a robust portfolio might easily get you through a few years without Social Security. But it's important to have a plan for covering expenses during that gap.

It could pay to tap taxable accounts first

If you're retiring in your late 50s but can't get Social Security for at least a few more years, you'll need to assess your savings and see where your money is sitting. If you have investments in a taxable brokerage account, you may want to turn to those first before raiding your IRA or 401(k).

Dipping into a taxable account first could limit your taxes in the near term and protect your IRA or 401(k) from immediate capital gains. Plus, IRAs and 401(k)s still grow on a tax-deferred basis, so it pays to let them keep growing for a few more years.

If you have a Roth IRA or 401(k), that should probably be the last account you tap during the gap between early retirement and Social Security. That's because money in these accounts gets to grow completely tax-free.

Make sure you have plenty of cash on hand

If you will be living off of your savings for a few years before Social Security begins, it's important to not be totally at the mercy of the stock market. What you may want to do is calculate how many years you'll need to pay your expenses without Social Security and convert enough assets into cash to cover that period.

For example, let's say you're retiring at 59. You may want to line up at least three years' worth of living costs in cash so you're covered until age 62, at which point Social Security becomes available, albeit at a reduced rate. This way, if there's a stock market crash, you won't necessarily be forced to lock in permanent losses in your portfolio.

Retiring early can be tricky without Social Security. But with a solid plan, you can bridge that income gap so you can enjoy the early workforce exit you've been saving for.

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