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.
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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.
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.
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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.
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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.
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.
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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.
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