How to Use Annuities as a Social Security Bridge

1 January 2026

So, you're approaching retirement and realizing that claiming Social Security right away might not be the best play. You’ve heard it pays more the longer you wait, but that leaves a big question: how do you cover your expenses in the meantime? This is where annuities can step in and play the role of a financial “bridge” — a source of income that fills the gap while you delay Social Security and maximize your benefits.

Let’s break this down, piece by piece, with a guide that’s friendly, practical, and easy to follow. By the end, you’ll understand how annuities can help you create a smoother, smarter path to retirement.

Why Wait to Claim Social Security?

Before we talk about annuities, let’s talk about Social Security. You can start claiming benefits as early as age 62 — but it comes at a cost. The earlier you start, the lower your monthly checks.

Every year you delay up to age 70, your benefit increases by about 8%. That’s a pretty sweet deal considering it's a guaranteed return, backed by Uncle Sam.

So, if you delay Social Security from age 62 to 70, that’s a 76% boost in monthly income. For many retirees, that bump makes a massive difference over the long haul — especially if they live a long life.

But here’s the kicker: if you delay, you still need to live on something. And unless you’ve got a mountain of cash sitting idle, that “bridge” can feel like a rickety rope walk.

That’s where annuities come in.

What Is an Annuity, Anyway?

Think of an annuity like your own personal pension. You give an insurance company a lump sum of money, and in return, they promise to pay you a stream of income — either for a set number of years or for the rest of your life.

There are different kinds of annuities. The main types you need to know for this conversation are:

- Immediate Annuities: Start paying you right after you buy them.
- Deferred Income Annuities: You buy now, they pay later.
- Fixed Annuities: Provide guaranteed payments.
- Variable/Indexed Annuities: Payments can change based on market performance.

For building a Social Security bridge, immediate or deferred fixed income annuities are the go-to options. Why? Because retirees want predictability, not surprises.

The Concept of a Social Security Bridge

Let’s say you're 62 and retiring. But after running the numbers (or talking with a financial advisor), you decide waiting until 70 to claim Social Security is smarter.

That’s eight years of needing income from other sources. You could tap into your 401(k), but that might mean selling investments during a downturn. You could just work longer — but that’s not always feasible or desirable.

An annuity can fill that exact income gap.

Here’s how it works: you invest some money (say, $150,000) into an immediate annuity at age 62. That annuity pays you $1,500/month until you turn 70. Then you stop drawing from the annuity because you start collecting your increased Social Security benefit instead.

Simple, clean, and reliable.

Benefits of Using Annuities As a Bridge

So why would you choose an annuity over just pulling from your savings or investments?

1. Predictable Income

With a fixed annuity, you know exactly how much you're going to get and when. No surprises. You don’t have to worry about market ups and downs — and that’s a huge relief when you’re not working.

2. Avoiding Portfolio Drain

Using savings or a 401(k) may require you to sell assets while markets are down — not ideal. An annuity separates your bridge income from your investment portfolio, letting your investments continue to grow untouched.

3. Psychological Peace of Mind

There’s something comforting about guaranteed cash hitting your account every month. It takes pressure off your other assets and can keep you from making emotional money decisions.

4. Maximized Social Security Benefit

We’ve said it before, but it bears repeating. Delaying Social Security can mean significantly more income later. Think of your annuity as the launchpad that gets you there.

How Much Annuity Do You Need?

This is the million-dollar question — sometimes literally.

Let’s say you need $3,000 per month to cover your barebones living expenses. You’ve got $1,500 coming from a pension, so you’re short another $1,500.

Multiply that by 12 months, and you need $18,000 per year. If you want to delay Social Security for 5 years, that’s $90,000.

But here’s the twist: you don’t need to save $90,000 exactly. Because annuities convert your lump sum into monthly payments with interest factored in, you can often get those payments for less than what you’d expect.

The exact amount will depend on:

- Your age
- Interest rates
- Type of annuity
- Payment period

Use an annuity calculator to play with the numbers. Better yet, talk to an independent financial advisor (not a salesperson!) to help you navigate.

Tax Considerations

Let’s be real, Uncle Sam always wants his piece of the pie.

- Non-qualified Annuities (ones purchased with after-tax dollars) are taxed only on the earnings portion of each payment.
- Qualified Annuities (funded with pre-tax dollars, like from a traditional IRA or 401(k)) are fully taxable when paid out.

Pro tip: if you’re considering using funds from a retirement account, talk to a tax advisor. There may be strategies involving Roth conversions or laddering that could save you serious money.

Downsides to Keep in Mind

No tool is perfect, and annuities aren’t for everyone. Here are a few catches to consider.

1. Lack of Liquidity

Once you hand over your lump sum to buy the annuity, it's pretty much locked in. You can’t just dip into it for emergencies.

This is why it’s critical to only use a portion of your savings — enough to build the bridge but not bankrupt yourself.

2. Inflation Risk

Most basic annuities offer fixed payments. That means they don't rise with inflation. If prices skyrocket, your payment won’t.

Some annuities offer inflation-adjusted payouts, but they cost more upfront. It’s a trade-off worth considering.

3. Complexity and Fees

Many annuities come with tons of fine print. Some are riddled with fees, surrender charges, and commissions. Stick to plain-vanilla fixed annuities when possible. The simpler, the better.

Real-Life Example

Let’s say Susan is 63, retiring from her job. She wants to delay Social Security until 70 to get the maximum monthly benefit.

She figures she needs an extra $2,000/month to comfortably make it for the next 7 years.

She takes $140,000 from her savings to buy a 7-year fixed immediate annuity that spits out $2,000/month like clockwork.

That $140,000 buys her peace of mind, allows her to delay Social Security, and eventually gives her a big boost in guaranteed income starting at age 70.

Frequently Asked Questions

Q: Should I use my 401(k) or cash to buy an annuity?

If you use your 401(k) or traditional IRA, it will be a qualified annuity, and all disbursements will be taxed as income. Using after-tax money gives you more control over the tax treatment. Talk to a pro to weigh your options.

Q: What if I die before the annuity ends?

Some annuities offer "period certain" options that continue payments to your beneficiary if you pass early. Make sure to ask about these when shopping around.

Q: Can I build a bridge with other types of income?

Sure! You can use part-time work, rental income, or a structured withdrawal from your portfolio. But annuities offer the benefit of guaranteed income, which those other sources might not.

When a Bridge Becomes More Than a Bridge

Here’s a fun thought: what if you actually like the idea of guaranteed income and want to make it a permanent part of your retirement plan?

Some people use annuities to bridge to Social Security — and then keep the annuity rolling for life. It’s like creating your own layered pension system.

This is especially appealing if you’re the kind of person who values security over market volatility. Not everyone wants to live on unpredictable investment returns in their 70s and 80s.

Final Thoughts

Annuities can be a powerful and practical tool to help you delay Social Security and retire with confidence. Just like a sturdy bridge, they can carry you across the gap between age 62 and 70 — so you can enjoy bigger benefits and more financial security down the line.

But make sure you understand the terms, compare products, and only use a part of your savings that you can comfortably part with.

Retirement is a big journey. With the right tools — and a little planning — you can make it a smooth ride.