The $1.8 Million 401(k) Strategy Most Retirees Miss: Drain It Now, Claim Social Security Later

On the Bogleheads forum, a version of this question surfaces every month: a newly retired 65-year-old with roughly $1.8 million in a traditional 401(k) wonders whether it makes sense to live off the portfolio for five years so she can claim Social Security at 70 instead of 67. The math is counterintuitive. Spending down the account she spent decades building often produces a wealthier and lower-taxed retirement than the alternative.

The obvious reason is the delayed retirement credit. A benefit worth $3,000 a month at a full retirement age of 67 grows by roughly 8% per year until 70, landing near $3,720. Every future cost-of-living adjustment then compounds on that larger base. The 2.8% COLA applied to Social Security benefits in 2026 on a bigger check represents a permanent raise that cannot be recaptured later.

The less obvious reason, and the one that changes her lifetime tax bill, is the five-year window between 65 and 70 when her taxable income can be almost anything she chooses.

The Tax Arbitrage Window Most Retirees Waste

For a single filer in 2026, the standard deduction is $16,100. The 12% bracket runs to $50,400 of taxable income, and the 22% bracket does not begin until $105,700. On top of that, the One Big Beautiful Bill Act (OBBBA) created a new $6,000 senior deduction available to filers aged 65 and older, phasing out above $75,000 of income for single filers. That deduction adds another layer of shelter precisely during the years she most wants to keep her tax footprint small.

She can pull roughly $66,500 from the 401(k), subtract the standard deduction, and land at the very top of the 12% bracket. Federal tax on that draw runs close to $5,800, an effective rate under 9%. The senior bonus deduction could push her effective rate lower still, depending on her income that year.

Compare that to age 71, when Social Security is on the return. A $45,000 annual benefit combined with the same $66,500 withdrawal produces enough provisional income to make 85% of Social Security taxable and push her next dollar into the 22% bracket. The same spending costs materially more in tax because the empty-return years are gone. Under SECURE 2.0, her RMDs do not begin until age 75, which stretches the low-bracket window even further if she starts converting now.

Why the IRMAA Cliff Sets the Ceiling

She is on Medicare at 65, and Medicare premiums use a two-year lookback on modified adjusted gross income, so her 2026 return determines her 2028 premium. The first IRMAA threshold for single filers sits at $109,000 of MAGI. Crossing it by a single dollar triggers a Part B surcharge of $81.20 per month above the standard $202.90 premium, plus a separate Part D surcharge of at least $14.50 per month. Combined, that adds up to more than $1,100 a year in additional premiums for crossing one threshold. That cliff is the natural ceiling on the withdrawal strategy: fill the 12% bracket, then stop before MAGI touches $109,000.

The room between the top of the 12% bracket and the IRMAA cliff is also the ideal Roth conversion space. Converting $30,000 to $40,000 a year during these five years at a 22% marginal rate shrinks the pre-tax balance that will eventually generate RMDs, and the converted dollars grow tax-free for the rest of her life.

What the Portfolio Actually Has to Do

Spending roughly $85,000 to $95,000 a year gross across the five-year bridge means drawing $425,000 to $475,000 from the portfolio. With the 10-year Treasury yield hovering near 4.65% in mid-August 2026 and the FOMC holding its target range at 3.5% to 3.75%, a five-year Treasury or CD ladder can lock in the withdrawal need without asking equities to cooperate on a specific schedule. Treasury yields have climbed to levels not seen in nearly two decades in August 2026, which actually makes the ladder more rewarding for retirees building one today. That matters because inflation remains elevated and sequence risk during a forced-drawdown period is the exact problem laddered fixed income solves.

Three Moves to Make Before Year End

1. Model a 2026 gross withdrawal that lands taxable income at $50,400 and MAGI below $109,000. Factor in the $6,000 OBBBA senior deduction, which could allow a slightly larger draw at the same effective rate. Every dollar above the IRMAA line costs far more than the marginal 22% tax rate suggests once Part B and Part D surcharges are added.
2. Layer in a partial Roth conversion each year through 69. Converting into the 22% bracket now is almost certainly cheaper than the blended rate her heirs, or her older self after RMDs and full Social Security, will pay on the same dollars.
3. Carve out the five-year spending need into a Treasury or CD ladder. Yields near 4.65% on 10-year Treasuries make this an unusually attractive moment to lock in the bridge. Doing so isolates the retirement fund from equity volatility and preserves the growth engine that has to fund ages 70 through 95.

The delayed benefit gets the attention. The tax planning between now and 70 is what actually funds the next thirty years.

Editor’s note: This article was updated to correct the federal funds rate (the FOMC target range is 3.5% to 3.75%, not “near 4%”) and to reflect the current 10-year Treasury yield near 4.65% as of mid-August 2026. It also adds the $6,000 OBBBA senior deduction available to filers aged 65 and older, and it clarifies the combined Part B and Part D IRMAA surcharge that applies when MAGI crosses $109,000.

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