The $1.6 Million 401(k) Strategy That Beats Waiting: Spend First, Let Social Security Compound to 70

Consider a couple, both 65, who just left corporate jobs with $1.6 million in their 401(k)s and a paid-off house. Their full retirement age is 67. The conventional move is to file for Social Security at 67 and let the 401(k) ride. The strategy quietly gaining ground in fee-only planning circles reverses that order: spend the 401(k) hard from 65 to 70, and let Social Security compound untouched.

The math is unusually clean, and it hinges on two rules working in the same direction.

Why the 8% Delayed Credit Beats the Portfolio

Every year a claim is deferred past full retirement age, the monthly Social Security check rises by roughly 8%. Waiting from 67 to 70 lifts the benefit by about 24%, and the 2026 COLA of 2.8% then compounds on the larger base for life. A worker entitled to $3,500 at 67 collects closer to $4,340 at 70, before COLAs.

That 8% is guaranteed, government-backed, and inflation-linked. The 10-year Treasury pays around 5% and I-bonds carry a a composite yield near 4%. No conservative asset in the current environment matches an 8% real annuitized return with a survivor benefit attached. Claiming at 62 does the opposite damage: benefits drop by up to 30% and stay there.

The Tax Cascade That Punishes Waiting

The second half of the argument is why the 401(k) should be drained first. Between retirement and age 73, when RMDs begin, wages have stopped and Social Security has not started. Taxable income is unusually low. In 2026, a married couple filing jointly gets a $32,200 standard deduction, and the 12% bracket runs to $100,800. The 22% bracket does not begin until income clears that line.

A couple pulling $110,000 from the 401(k) in this window pays an effective federal rate in the low teens. Nothing pushes Social Security into taxability, because they are not collecting yet. IRMAA does not apply, because they are not on Medicare Part B until 65 and the surcharge is a two-year lookback on modified adjusted gross income.

Flip the sequence. Wait until 73, collect Social Security from 67, and let the 401(k) grow to roughly $2.4 million by then. The first RMD alone is around $91,000. Add two Social Security checks, and modified AGI can clear the first IRMAA threshold and drag up to 85% of benefits into taxable territory. The marginal cost of the last dollar withdrawn approaches 40% once the interlocking penalties are counted. This is the gap that fee-only planners call the Roth Window, and there is a deeper 24/7 Wall St. brief on how to use it for readers who want the full playbook on conversions during these years.

The Numbers a Retiree Can Check

Average annual household expenditures ran $78,535 in 2024, and affluent retirees typically spend more in the first decade of retirement on travel and healthcare. Funding five years of $110,000 withdrawals from the 401(k) costs roughly $550,000 of principal. In exchange, the couple lets a Social Security benefit worth six figures a year compound at 8% plus COLA, shrinks the RMD base that will be taxed at higher rates later, and leaves room for partial Roth conversions in the same low-bracket years.

The roughly 4% fed funds rate matters here too. Cash and short duration are paying less than they did a year ago, which lowers the opportunity cost of spending down a taxable-when-touched account first.

Three Moves Before Filing

1. Pull a personalized statement from ssa.gov and note the benefit at 67 and at 70. If the gap is more than about $10,000 a year per spouse, the delay strategy usually pays.
2. Model a 401(k) withdrawal that fills the 12% bracket to $100,800 plus the standard deduction. Any withdrawal below that ceiling is cheap in 2026 dollars.
3. Sketch RMDs at 73 using the current balance and a 5% growth assumption. If projected RMDs plus delayed Social Security push modified AGI above the first IRMAA tier, the spend-first sequence is quantitatively the right call.

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