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

A growing cohort of affluent couples is spending down the 401(k) between ages 65 and 70 and delaying Social Security until 70, locking in a benefit that is 24% larger and inflation-protected for life. The core math is straightforward, but the tax and Medicare angles that make this strategy compelling for high earners deserve a closer look.

Consider a married couple, both 65, with $2.5 million in a traditional 401(k) and each entitled to $3,300 a month at full retirement age 67. Filing today locks in $6,600 a month for the household. Waiting until 70 adds 8% a year in delayed retirement credits for each year past FRA, a 24% total boost over the three-year gap, lifting each monthly benefit to roughly $4,092 and the household total to $8,184. The credits stop accruing at 70, so waiting past that birthday adds nothing.

The Bridge Math

Covering spending during those five years without Social Security requires drawing roughly $130,000 a year from the 401(k), about $650,000 over the bridge period. That is a real and immediate cost. The payoff is a permanently larger, COLA-protected income base that runs for the rest of two lives and then continues for the surviving spouse.

Running lifetime totals to age 90 makes the trade concrete. Claiming at 67 produces roughly $3,300 times 12 months times 23 years for both spouses, totaling about $1.82 million. Delaying to 70 produces roughly $4,092 times 12 months times 20 years for both spouses, totaling about $1.96 million. The couple comes out approximately $140,000 ahead on a straightforward count, before accounting for the larger COLA base the surviving spouse carries forward. That survivor effect is often the dominant variable once one partner outlives the other by a significant margin.

Why the Bridge Window Is Worth So Much

The larger prize is what those five years allow on the tax side. From 65 until Social Security turns on at 70, taxable income is whatever the couple chooses to pull from the 401(k). That creates five clean years to execute Roth conversions before benefits begin counting toward provisional income, before required minimum distributions arrive, and before the 85% Social Security taxation threshold becomes a permanent drag on the household’s tax bill.

One important timing note for this cohort: a couple both turning 65 in 2026 were born in 1961, which puts them in the group that must begin RMDs at age 75 under SECURE 2.0, not the age-73 rule that applies to those born between 1951 and 1959. That gives them two extra years of conversion runway beyond what older planning guides assumed. Drawing $650,000 out of a $2.5 million pre-tax balance also shrinks the future RMD base by roughly a quarter, compounding into smaller forced withdrawals through the couple’s late 70s and 80s. Most break-even calculators ignore that second payoff entirely.

The IRMAA Trap That Wrecks Sloppy Conversions

Medicare reshapes the calculation in ways many planners underestimate. The first IRMAA surcharge tier for 2026 begins at $218,000 of modified adjusted gross income for joint filers, and Medicare uses a two-year lookback on tax returns. A Roth conversion executed in 2026 at age 65 sets premiums at age 67 in 2028. The standard Part B premium in 2026 is $202.90 a month per person. Cross the first IRMAA tier and Part B surcharges add $81.20 per person per month, while Part D surcharges add another $14.50 per person per month. For a couple, that comes to roughly $2,300 in additional Medicare costs for that year alone, and crossing a higher tier pushes the combined annual hit several thousand dollars more per person.

The rate environment sharpens the case for acting during this window. The 10-year Treasury yield climbed above 5.2% in late September 2026, its highest level in nearly two decades, far above where it traded for most of the prior decade. Tax-deferred dollars left unconverted now compete against a meaningfully higher opportunity cost. The Federal Reserve reinforced that message on September 16, 2026, when the FOMC voted 12-0 to raise the federal funds rate by 25 basis points to a target range of 3.75% to 4.00%, the first hike since 2023. The unanimous vote followed months of building pressure: at the July 2026 meeting, three regional presidents, Beth Hammack of the Cleveland Fed, Neel Kashkari of the Minneapolis Fed, and Lorie Logan of the Dallas Fed, had dissented from a hold decision in favor of an immediate rate increase. With inflation still above the 2% target and energy prices keeping upside risks elevated, the old assumption that yields would drift back toward zero no longer holds.

The Survivor Variable

Joint life expectancy is the variable most spreadsheets overlook. When one spouse dies, the household keeps the larger of the two Social Security benefits and loses the smaller one. A base that is 24% higher, growing each year with COLAs tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), can be worth tens of thousands of dollars more per year by the late 80s. The 2026 COLA was 2.8%, and even modest annual adjustments compound meaningfully across two or three decades of retirement.

There is a second survivor risk that most couples miss. A widowed spouse filing as single instead of jointly can face sharply higher IRMAA surcharges on the same income, because the single-filer threshold sits at roughly half the joint threshold. A survivor with $200,000 in annual income who previously filed jointly below the first IRMAA cliff can land in a much higher tier the year after the death. Converting aggressively during the bridge years, while both spouses are alive and filing jointly, reduces the pre-tax balance that generates those RMDs and IRMAA exposure in later years.

What To Do This Week

1. Pull each spouse’s primary insurance amount from SSA.gov and confirm the FRA and age-70 figures before locking the strategy. New earnings years and zero years from any early retirement can move both numbers.
2. Model 401(k) drawdowns and Roth conversions in one spreadsheet, with MAGI capped under $218,000 in every year that will set Medicare premiums two years later. Treat the IRMAA cliff as a hard ceiling, because crossing it by even a dollar triggers the full surcharge for that tier.
3. If projected income in any conversion year would clear the first IRMAA tier, the cost of a fee-only advisor or a SmartAsset matched planner is a rounding error against five figures of avoidable surcharges and overpaid lifetime taxes.

Editor’s note: This pass updates the 10-year Treasury yield to above 5.2%, reflecting late September 2026 levels, and revises the Fed paragraph to incorporate the September 16, 2026 FOMC decision, which raised the federal funds rate 25 basis points to 3.75%-4.00% in a unanimous 12-0 vote, the first hike since 2023.

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