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

A 65-year-old single retiree with $1.3 million in a traditional 401(k) and a Social Security benefit of $3,200 a month at full retirement age 67 has a choice most people never think through. Claim Social Security on schedule and let the 401(k) keep compounding, or do the opposite: live off the 401(k) starting now and let Social Security grow until 70. The second path is what an increasing number of wealthy retirees and their advisors are choosing, and the math is more lopsided than most readers expect.

A recent Clark Howard listener letter captured the logic plainly. The writer argued the host had undersold the case for waiting, noting that if the higher wage earner delays, the surviving spouse receives roughly a 30% higher monthly payment for the rest of his or her life. For a single filer there is no survivor angle, but the core trade is identical: shrink the taxable balance now, lock in a larger inflation-protected check later.

The 24% Raise Hiding in Plain Sight

Social Security pays about 8% more for each year you defer past full retirement age, up to age 70. For our 65-year-old, delaying from FRA 67 to 70 converts the $3,200 monthly FRA benefit into roughly $3,968, a 24% permanent increase, before COLAs are layered on top. The 2026 COLA of 2.5% compounds on that larger base every year for life.

Compare that 8% guaranteed step-up against today’s risk-free alternatives. The 10-year Treasury yields almost 4.6%, the 30-year sits near 5%, and the Fed funds upper bound is just under 4%. No fixed-income instrument on the curve matches the delayed retirement credit, and none of them carry an automatic inflation adjustment tied to CPI, which rose from 308.4 in January 2024 to 333.0 in April 2026. The COLA is what protects purchasing power on a 25-year retirement horizon.

The 2026 benefit ceilings frame the upside: $2,969 at 62, $4,207 at FRA 67, and $5,181 at 70. A high earner who claims early surrenders nearly $2,200 a month, every month, for life.

The Second Win: A Smaller RMD Tax Bomb

Drawing the 401(k) down between 65 and 70 does double duty. Every dollar spent in the bridge years is a dollar that will not be subject to required minimum distributions starting at age 73. A $1.3 million balance left untouched can easily grow past $1.7 million by 73, forcing six-figure forced withdrawals that stack on top of Social Security.

That stacking is the tax cascade readers underestimate. Ordinary-income RMDs push up to 85% of Social Security benefits into taxable territory and can trigger IRMAA Medicare surcharges on a two-year lookback. A retiree in the 22% bracket who trips both can face an effective marginal rate near 40%. Spending the 401(k) first, in years when reported income is low, shrinks that future cascade and opens space for partial Roth conversions taxed at 12% or 22% rather than 24% or 32% later.

The break-even point on delaying Social Security typically lands in the low-80s. Anyone with family longevity, a healthy 65-year-old female in particular, is statistically buying the larger annuity at a discount.

Three Moves to Run This Quarter

1. Build the bridge. Carve out roughly five years of spending from the 401(k) and cash. For $80,000 a year of after-tax spending, that’s $400,000 to $450,000 earmarked for ages 65 through 70, ideally laddered in Treasuries yielding almost 4% at one year up to roughly 4.3% at five years to remove market risk from the bridge.
2. Layer Roth conversions into the low-income window. With no Social Security and no wages, taxable income in the bridge years can be engineered to fill the 12% and 22% brackets cleanly. Every dollar converted now is a dollar that never shows up in a 73-year-old’s RMD.
3. Pull a personalized claiming analysis. Run the SSA.gov estimator and, if the decision involves a spouse or ex-spouse, pay for software that models survivor and spousal interactions. Generic break-even tables miss the tax-cascade savings entirely.

The case for spending the 401(k) first comes down to replacing taxable, inheritable, market-exposed dollars with a larger stream of inflation-adjusted, government-backed income, while quietly defusing the RMD problem before it detonates.