Delaying Social Security to age 70 boosts monthly benefits by 24% while reducing taxable 401(k) balances to avoid higher RMD-driven tax rates.
Wealthy retirees are increasingly tapping 401(k) savings first and deferring Social Security until age 70, a strategy that boosts monthly benefits from $3,200 to $3,968 with lifetime inflation adjustments. The approach prevents $1.3 million 401(k) balances from triggering required minimum distributions (RMDs) that could push marginal tax rates near 40%.
By spending down 401(k) assets early, retirees create a low-income window to execute Roth conversions at 12% to 22% tax rates, avoiding 24% to 32% brackets that apply once RMDs begin at age 73. Advisors note the strategy also provides surviving spouses with a 30% higher monthly benefit if the higher earner delays claiming.
The trade-off reduces taxable income in early retirement while locking in larger, inflation-protected Social Security payments later, a calculation often overlooked by retirees.