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 65 and 70 and delaying Social Security until 70, locking in a benefit that is 24% larger and inflation protected for life.

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 now would lock in $6,600 a month for the household. Waiting until 70 raises each check by 8% a year in delayed retirement credits, a 24% boost over FRA, lifting each monthly benefit to roughly $4,092 and the household total to $8,184.

The Bridge Math

To cover spending in those five years without Social Security, the couple draws roughly $130,000 a year from the 401(k), about $650,000 over the bridge. That is a real cost. The trade is a permanently larger, COLA protected base for the rest of two lives and the survivor’s life.

Run lifetime totals to age 90. Claiming at 67 produces $3,300 times 12 times 23 years for both spouses, about $1.82 million. Delaying to 70 produces $4,092 times 12 times 20 years for both spouses, about $1.96 million. The couple is roughly $140,000 ahead, before counting the larger COLA base for the surviving spouse, which is often the dominant variable once one partner outlives the other.

Why The Bridge Window Is Worth So Much

The bigger prize is what these years let you do with the tax code. From 65 until Social Security turns on at 70, taxable income is whatever you choose to pull from the 401(k). That gives five clean years to execute Roth conversions before benefits begin counting toward provisional income, before required minimum distributions arrive at 73, and before the 85% Social Security taxation threshold becomes a permanent feature of your return.

Drawing $650,000 out of a $2.5 million pre tax balance also shrinks the future RMD base by roughly a quarter, which compounds into smaller forced withdrawals every year of the couple’s 70s and 80s. That is the second hidden payoff most break even calculators ignore.

The IRMAA Trap That Wrecks Sloppy Conversions

Medicare changes the calculation. The first IRMAA tier for 2026 begins at $218,000 of modified adjusted gross income for joint filers, and Medicare uses a two year lookback. A conversion done at 65 sets premiums at 67. Cross the first tier and Part B and Part D surcharges add roughly $1,000 to $2,000 per spouse for the year. Cross higher tiers and surcharges climb several thousand more per person.

The current rate environment sharpens the case. The 10-year Treasury sits near 4%, and the Fed Funds upper bound is almost 4% after several cuts since late 2025. Money market and CD yields are heading lower, which weakens the case for parking 401(k) dollars in cash and strengthens the case for converting tax deferred balances while ordinary rates are visible and brackets are known.

The Survivor Variable

Joint life expectancy is the piece most spreadsheets miss. When one spouse dies, the household keeps the larger of the two benefits. A 24% larger base, growing each year with COLAs tied to inflation measures like Core PCE, which has climbed steadily over the past 12 months, can be worth tens of thousands a year by the late 80s. That is longevity insurance funded with 401(k) dollars you would have surrendered to RMDs anyway.

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.
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.