Boomers Are Asking: What’s the Difference Between a Bridge Year and a Retirement Reset?

As retirement looms near, boomers might be considering what’s known as a “bridge year.” However, some guides might suggest what has been referred to as a “retirement reset.”

One of these is a common, recommended strategy for those coming close to retiring, while the other is rarely suggested — or warranted. Below is how experts determine the difference between a bridge year and a reset.

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Ali Zane is a personal finance expert and CEO of IMAX Credit Repair Firm. Zane called a bridge year “one of the most profitable financial moves you can make,” but said only 10% of retirees opt for it. What exactly is a bridge year? It basically boils down to the fact that each year spent waiting beyond the full retirement age — which is 67 — to take benefits adds 8% to lifetime monthly Social Security benefit payments. Though it’s referred to as a single bridge year, Zane said it can be more than a year, but always worth it.

“For example, I had a client who retired at 63 with $780,000 in 401(k) and brokerage savings,” Zane explained. “We calculated a seven-year bridge where she had to withdraw around $52,000 from her accounts to sustain her old lifestyle during this period, thereby growing her Social Security payments to an expected total of $3,120 per month at age 70 from the projected $1,950 at age 63. This is a 60% increase in monthly benefits.”

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When seniors are looking at a retirement reset, Zane said it’s completely different and more daunting than a bridge year plan. “A reset is required in cases where the original retirement plans don’t pan out because of one of several factors,” Zane explained, “such as a drop in the value of your portfolio due to unfavorable market conditions, an unexpected medical expense, getting divorced at age 60 (a phenomenon that has tripled in America since 1990) or children who require your financial assistance. This means a retiree has no option but to rethink and redesign their retirement plan.”

This can mean going back to work part time, budgeting more conservatively or downsizing their home or vehicle. The biggest difference between a bridge year and a retirement reset is that one is proactive and one is reactive, according to Zane. “Resets are less common compared to a bridge year and appear in maybe one or two out of every ten retirement plans because the latter is proactive, while the former is a reaction to circumstances,” Zane added.

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This article originally appeared on GOBankingRates.com: Boomers Are Asking: What’s the Difference Between a Bridge Year and a Retirement Reset?