Why Wealthy Retirees Are Spending Their 401(k) First and Letting Social Security Compound to Age 70

1 hour ago 2

Austin Smith

Fri, June 12, 2026 astatine 12:22 PM CDT 5 min read

Quick Read

Delaying Social Security from property 67 to 70 permanently raises monthly benefits by 24%, converting a $3,200 cheque into astir $3,968 with beingness COLA protection.
Spending the 401(k) archetypal during the span years prevents a $1.3M equilibrium from ballooning into forced RMDs that tin propulsion effectual marginal taxation rates adjacent 40%.
The low-income span model lets retirees execute Roth conversions astatine taxation rates of 12% to 22%, alternatively than the 24% to 32% rates that use erstwhile RMDs footwear successful astatine 73.
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A 65-year-old azygous retiree with $1.3 cardinal successful a accepted 401(k) and a Social Security payment of $3,200 a period astatine afloat status property 67 has a prime astir radical ne'er deliberation through. Claim Social Security connected docket and fto the 401(k) support compounding, oregon bash the opposite: unrecorded disconnected the 401(k) starting present and fto Social Security turn until 70. The 2nd way is what an expanding fig of affluent retirees and their advisors are choosing, and the mathematics is much lopsided than astir readers expect.

A multiracial elder mates sits astatine a woody room table, reviewing paperwork and looking astatine a achromatic laptop. The woman, with grey hairsbreadth and a yellowish shirt, smiles somewhat portion looking astatine the man. The man, with grey hair, a beard, glasses, and an orangish polo shirt, holds up a achromatic papers and points to it portion looking astatine it intently. A achromatic java mug, an unfastened notebook, and 2 croissants connected a achromatic sheet are besides disposable connected the table. The inheritance shows a modern, agleam room with hanging airy fixtures.

A caller Clark Howard listener missive captured the logic plainly. The writer argued the big had undersold the lawsuit for waiting, noting that if the higher wage earner delays, the surviving spouse receives astir a 30% higher monthly outgo for the remainder of his oregon her life. For a azygous filer determination is nary subsister angle, but the halfway commercialized is identical: shrink the taxable equilibrium now, fastener successful a larger inflation-protected cheque later.

The 24% Raise Hiding successful Plain Sight

Social Security pays astir 8% much for each twelvemonth you defer past afloat status age, up to property 70. For our 65-year-old, delaying from FRA 67 to 70 converts the $3,200 monthly FRA payment into astir $3,968, a 24% imperishable increase, earlier COLAs are layered connected top. The 2026 COLA of 2.5% compounds connected that larger basal each twelvemonth for life.

Compare that 8% guaranteed step-up against today's risk-free alternatives. The 10-year Treasury yields astir 4.6%, the 30-year sits adjacent 5%, and the Fed funds precocious bound is conscionable nether 4%. No fixed-income instrumentality connected the curve matches the delayed status credit, and nary of them transportation an automatic ostentation accommodation tied to CPI, which roseate from 308.4 successful January 2024 to 333.0 successful April 2026. The COLA is what protects purchasing powerfulness connected a 25-year status horizon.

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