Why a 64-Year-Old Couple Is Spending Down a $1.4 Million 401(k) First and Letting Social Security Grow 8% a Year Until 70

Key Points:

• A 64-year-old couple with $1.4 million in a 401(k) plans to live solely on their 401(k) withdrawals until age 70, then claim the maximum Social Security benefits, leveraging the increased payout from delayed claiming.
• Delaying Social Security from full retirement age (67) to 70 increases benefits by 24%, includes cost-of-living adjustments, and provides a lifetime, inflation-protected survivor benefit, which often outweighs returns from safe 401(k) investments.
• With no wages or Social Security income between 64 and 70, 401(k) withdrawals fall into lower tax brackets (12% or less), creating an optimal window for Roth conversions that reduce future required minimum distributions (RMDs) and associated taxes.
• After 70, RMDs combined with Social Security income can push couples into higher tax brackets and trigger Medicare IRMAA surcharges, so careful planning of withdrawals and conversions within tax and IRMAA limits is crucial.
• To mitigate sequence risk from market downturns before Social Security starts, experts recommend laddering Treasury bonds for the first three years of withdrawals and adjusting stock allocations accordingly, alongside mapping out detailed withdrawal and conversion strategies.