Why Wealthy Retirees Are Draining Their 401(k) Early to Lock In a Bigger Social Security Check at 70

A 63-year-old with $1.4 million in a traditional 401(k) who delays Social Security to 70 can collect $3,720 per month instead of $3,000 at full retirement age. The math looks compelling, but funding that delay through 401(k) withdrawals creates a tax problem that can quietly eat away much of the gain.

The Benefit Gap Compounds Over Time

For a high earner whose full retirement age benefit is $3,000 per month at 67, waiting until 70 produces $3,720 per month. That works out to $44,640 per year versus $36,000 at full retirement age, a difference of $8,640 annually. In nominal terms, over a decade that gap adds up to $86,400 before any cost-of-living adjustments are counted. Social Security COLAs track the CPI-W index, with the most recent adjustment set at 2.8% for 2026. Each annual COLA applied to a larger base benefit produces more dollars in absolute terms, which means the advantage of delaying widens further with every passing year. The Senior Citizens League projects the 2027 COLA at 3.8%, and if that forecast holds, a higher base benefit would deliver even more in added income.

A retiree who delays from 62 to 70 typically breaks even versus early claiming at around age 80 to 81. According to Social Security Administration data, the average 65-year-old man can now expect to live to about 84, and the average woman to about 87. For anyone in reasonable health, the odds of outliving that break-even point are quite good. Financial planning experts have recently cautioned, though, that the break-even frame can oversimplify the decision: for married couples in particular, the higher earner’s delay permanently lifts the survivor benefit, a factor that pure break-even math tends to ignore.

Using the 401(k) as a Bridge Reduces RMDs

Drawing the 401(k) down from 62 to 70 to cover living expenses funds the bridge period without requiring Social Security and shrinks the account balance subject to required minimum distributions starting at age 73.

Consider a $1.4 million 401(k) at 62, drawn at $60,000 per year for eight years while the remaining balance earns 5% annually. By age 70, that account carries a smaller balance than one left untouched. That smaller balance produces smaller RMDs, which means less ordinary income forced into the tax calculation each year after 73. The withdrawals replace income the retiree would have needed anyway, reducing the taxable account balance without triggering a separate conversion event.

The Tax Cascade That Derails the Strategy

The bridge-withdrawal approach works cleanly only if annual 401(k) draws stay below two critical thresholds.

The first is the Social Security combined income threshold. Once provisional income (adjusted gross income plus half of Social Security) exceeds $34,000 for single filers or $44,000 for joint filers, up to 85% of Social Security benefits become taxable. During the bridge years before Social Security begins, this is not a concern. At 70, however, when both RMDs and the larger Social Security benefit arrive simultaneously, combined income can push well into taxable territory.

The second threshold is IRMAA. Because Medicare uses a two-year MAGI lookback, a large 401(k) withdrawal at 65 affects Medicare premiums at 67. The 2026 IRMAA surcharge for a single filer begins at $109,000 in MAGI and adds roughly $1,150 per person per year at Tier 1 (Part B and Part D combined), rising to nearly $7,000 per person per year at the top tier. The standard Part B premium stands at $202.90 per month in 2026, and IRMAA layers on top of that. Keeping annual 401(k) draws below the first IRMAA threshold preserves the standard premium. Crossing it by even $1 triggers the full Tier 1 surcharge rather than a gradual increase, a cliff that catches many retirees off guard.

The Spousal Coordination Angle

A lower-earning spouse can claim Social Security early at 62 to provide household income while the higher earner delays until 70, maximizing the couple’s combined lifetime benefit. That structure also reduces the 401(k) draw required during the bridge period, since one Social Security check already covers part of household expenses. The household retains some guaranteed income regardless of portfolio performance, which matters most if markets struggle during the delay window.

With the 10-year Treasury yielding around 4.5% in mid-2026, intermediate fixed income can anchor the bridge portfolio while equities continue to grow, providing both cash flow and capital preservation. For income-oriented exposure, Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) currently yields about 3.3%, while JPMorgan Equity Premium Income ETF (NYSEARCA:JEPI) currently yields about 8.1% through a covered-call strategy. The two funds offer different income profiles, and one important distinction is that JEPI’s distributions are largely taxed as ordinary income rather than at the lower qualified-dividend rate. That tax treatment makes JEPI better suited to a tax-deferred account during the bridge period, where the ordinary income treatment carries no immediate cost.

Three Steps Worth Taking Now

1. Pull your Social Security statement at ssa.gov and calculate the exact monthly benefit at 62, 67, and 70. The difference between your full retirement age benefit and your age-70 benefit is the annuity you are purchasing with each year of delay. Compare that implicit return against what your 401(k) is likely to earn.
2. Model your projected MAGI during bridge years using your expected 401(k) draw. If that figure approaches $109,000 for a single filer or $218,000 for a married couple filing jointly, the IRMAA surcharge two years later is a real cost that needs to be factored into the math. A fee-only advisor can run this calculation with full income projections.
3. Check whether a spousal coordination strategy applies. If one spouse has a substantially lower earnings record, early claiming for that spouse while the higher-earning spouse delays can reduce portfolio dependency during the bridge period and permanently increase the survivor benefit.

Editor’s note: This update corrects the top-tier IRMAA annual surcharge from “over $7,000” to “nearly $7,000” based on CMS-confirmed 2026 Part B and Part D figures, adjusts the SCHD yield from approximately 3.4% to approximately 3.3% and the JEPI yield from approximately 8.2% to approximately 8.1% to reflect current distribution data, and adds context from the Senior Citizens League’s 2027 COLA projection of 3.8% and recent expert commentary cautioning against over-reliance on break-even framing for married couples.

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