Jun 7, 2025
On paper, drawing down your 401(k) to delay Social Security benefits seems like a clever maneuver. After all, the monthly benefit check grows larger every year that you manage to delay retirement.
However, there’s more to consider than just the size of the monthly payout. Here’s why you, and perhaps your financial advisor, should take a closer look at all the other variables that can impact your retirement income.
A surprising impact
A simple calculation would have you believe that it’s best to delay collecting Social Security as long as possible.
Thanks for subscribing!
Read the best of Moneywise in 5 minutes or less.
By signing up, you accept Moneywise Terms of Use, Subscription Agreement, and Privacy Policy.
After all, your monthly benefit checks can be roughly 30% higher if you wait until retirement instead of collecting at the earliest possible age of 62, according to the Social Security Administration.
However, this theoretical calculation is done in a vacuum and doesn’t consider any other factors.
Advertisement
Surprisingly, for some people taking Social Security early might actually be the better option when they consider all the other factors. Your total payout from the day you retire until the end of life could be higher. Here’s a better approach to make this decision.
Must Read
- The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100
- Here’s the average income of Americans by age in 2026. Are you keeping up or falling behind?
- Insurance companies profit most from drivers who auto-renew without shopping around. Comparing 100+ quotes takes 2 minutes and costs nothing
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
Consider all the factors
An often-overlooked complicating (and key) factor in the simple calculation above is the opportunity cost of your 401(k) investments. Every dollar you withdraw from this account is one less dollar that could be compounding with interest payments or the stock market.
Over the past five years, the Vanguard S&P 500 ETF has delivered a compounded annual growth rate of 15.85%. In other words, you would boost your nest egg by roughly 30% in just under two years, outperforming the Social Security boost, which is capped.
Even if the stock market returns are significantly lower — say 5% compounded annually — your nest egg would be 30% larger within five and a half years. Besides, if stocks are in a deep bear market when you turn 62, it might not be the best time to sell your assets at distressed valuations.
Drawing down your 401(k) for monthly income might also be easier if you have a sizable nest egg to rely on. However, if your assets are limited, drawing down on it for several years could leave you feeling squeezed before you ultimately decide to take benefits.
Other factors to consider are your health and longevity. Average life expectancy for U.S. adults is 78.4, according to the CDC, which means you’re statistically likely to enjoy just seven or eight years collecting benefits if you wait until full retirement age.
However, if your end of life is sooner or later it could dramatically shift the calculation. Waiting until full retirement age might be a better financial decision if you expect to live to 90, for example.
Advertisement
There are also tax considerations. If you are still working in your mid-60s, drawing down your 401(k) might be a better move than taking Social Security benefits which are subject to taxes.
There’s a lot of variables to consider, so the ultimate calculation depends on your personal preferences and financial situation.
Which choice is right for you?
For many retirees in good health with a long life expectancy, it’s often wiser to draw down their 401(k) first and delay Social Security to maximize guaranteed, inflation-adjusted income.
This strategy offers more control over taxes and can reduce future required minimum distributions (RMDs).
However, taking Social Security early may be better for those with health issues, immediate income needs, or smaller retirement savings.
Speak to a financial professional and make sure they’re considering all these factors before they draft your long-term retirement plan.
You May Also Like
- JP Morgan sees gold hitting $6,000/oz before 2027 — and a Gold IRA lets you hold the physical metal while deferring the tax bill. Get your free guide from Priority Gold
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s what it is and the simple steps to fix it ASAP
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
Managing Money • 13h ago
Are you richer than you think? 5 clear signs you’re doing better than the average American in 2026
Managing Money • Jun 11
