Let’s say Henry is going to retire on a specific day. He has a decent 401k balance and he will be eligible to collect Social Security. He does not need to tap into both. Should he start collecting SS and leave his 401k alone until needed? Or should he withdraw from his 401k and delay SS?
It’s a hypothetical, so here are some details:
The amount Henry would withdraw from his 401k would be equal to the amount he would receive from SS.
Henry has not yet reached SS full retirement age.
I see arguments for both sides. I suppose there are other things to consider. But, in general, which strategy makes more sense?
IMO there is usually less reason to delay taking SS than people think there is.
The government tacitly encourages you to wait by showing your future SS payments on ssa.gov based on the assumption that you will work until you claim SS benefits.
OTOH if you retire and don’t keep earning (simply around waiting X years to claim SS) you will receive less than ssa.gov says you will.
Having relatives or charities that you want to leave money to is another reason to take SS now, and let the 401k grow tax-free until you check out.
ETA: As Si_Amigo notes, longevity is probably the biggest variable.
If I start taking money out at 62 vs 67 my break even point is at 80, that is the total amount given to me would be about equal. I would be able to invest my SS checks for those 5 years and make more money total.
More seriously, I am leaning toward advising Henry to take the SS and to not withdraw from the 401k yet if possible.
I know it all comes down to how long you will live. That said, If Henry, delays SS, I…I mean, Henry, will be basically declining $2400 every single month. Doing that for just a year is like saying no thanks to $28,000.
One more topic for discussion: the current health of the economy and my declining 401k makes me think that it would be better to leave the balance alone for now.
I tend toward delaying SS as long as you can. Once that bell is rung, you can’t unring it. But I don’t think there we can really find a correct answer. If the market soars, yeah you should take SS early but if it tanks, then you might wish you had held out for larger SS checks. Depending on the quality of your crystal ball, you may or may not wish later that you chose the other path.
Spousal unit and I are both drawing our SS as well as my gummint pension. We’d rolled our 401k accounts into annuities which we don’t plan to touch until we have to, barring an emergency need for funds. This is all pretty much on the advice of our financial guy, plus we don’t need the annuity money yet. No sense drawing it down while it can still be earning.
When I tried to figure out SS for myself, I wound up thinking that they did a good job of adjusting the curve so that the total payout didn’t depend on how early you started taking it, if you lived an average lifespan. So, if you think you will have a longer life, you should delay, and if you think you will have a shorter life, you should start it ASAP.
Other investment vehicles didn’t get specifically designed with that goal, so an overall strategy for people who expect an average lifespan might be to decide which way the other vehicles (including 401k) favor, and then let SS complement them.
That’s right. I don’t expect to be touching mine until 67 myself. Just have those extra 5 years of earnings working for me. And at least SS increases with inflation. A financial planner agreed with me on this.
I really don’t see living pass 80 based upon family history and my own health issues, could very likly be sooner. Better to have it while younger. Not planning on leaving a dime to anybody else, although my niece will get whatever is left.
One thing that should be noted is that survivor’s benefits are based on the deceased person’s benefit at full retirement age (FRA). If you have been the primary earner in the family and expect your spouse to outlive you, you should wait until FRA to start collecting benefits, as taking early social security will lead to reduced survivor’s benefits. If your spouse made enough income so that their own social security benefits exceed the survivor’s payout then this doesn’t apply.
I don’t understand this – I could see rolling some 401k money into an immediate annuity to create your own pension, but there’s no advantage to a deferred annuity in a 401k – deferred annuities have a deferred tax advantage that you don’t need inside a 401k.
To the OP, I don’t know, it really depends on your health. If you have health issues that may affect your longevity, you’re probably better off taking your SS now, but if you’re healthy and have longevity in the family, maybe wait.
One would hope that a market that tanks would eventually recover, but suppose that takes years? If you leave it in place and draw SS you’re stuck with lesser SS for life and your 401k is no better than it was before. You could argue and I wouldn’t say you’re wrong that if you withdraw from 401k that’s gone south what you’re doing is selling at the low point of the rollercoaster and not give yourself a chance to ride it back up. Personally, the overriding concern is denying yourself those higher SS checks for a lifetime.
Neither of us is particularly savvy when it comes to investments and such. We talked with our finances guy about our short-and-long-term goals and plans, and went with his suggestions. I know there were alternatives, and we discussed several, but this was the setup that we were most comfortable with. I can’t really complain, as both accounts have more than doubled since they were created. We figure we’ve got enough for a comfortable retirement with a cushion for emergencies. There may even be some left over to go to our daughter when we die. It works for us. Obviously it’s not the approach everyone would take.
I agree with this too. With the markets like they are, you definitely don’t want to draw any stocks out. This is less pressing if your 401k is heavily in non-stocks (bonds, cash).
I don’t think anyone is discussing doing this. At least not anyone with the potential power to get it done. I’m sure they’ll tinker with the benefit ages, and probably raise the cap on contributions, but Social Security in basically the form it is now is likely to remain during all of our lifetimes.
I waited until 70 to collect SS. My father died at 95 and I’m healthier than he was. It helped that we pulled the hack of my wife collecting with me getting spousal benefits until we switched when I was 70.
My IRA and post-tax money generated enough income so we could live pretty well on it, and only drew down capital for big projects.
I moved money from my pension into an annuity which I haven’t touched yet. It has excellent death benefits, and I suspect I never will. I understand that annuities are not generally considered to be good investments, I did it because the pension was basically an annuity already and at 60 I was worried about cash flow.
Last year I moved money out of the IRA into cash to reduce the mandatory withdrawals that are coming soon, and I’m glad I did since now I don’t have to touch the investments. I am in a lot of less volatile income producing equities, so while I didn’t make as much as I could during the boom I’m not losing that much now.
So, to answer, it depends. If I thought I had a low life expectancy and would have to sell investments to finance living these days I might go with SS now. If I had a high life expectancy and could finance most of my needs from income I’d delay getting SS.
As long as the $28k per year doesn’t put Henry into a larger tax bracket I don’t see an issue with that plan.