Should You Really Use 401(k) Before Social Security? – Avoid This Mistake + FAQs

For many retirees, using your 401(k) savings first and delaying Social Security can be a smart move 🙂.

Why? Because Social Security benefits grow larger the longer you wait (up to age 70).

By living off your 401(k) or other savings early in retirement, you allow your future Social Security checks to increase by around 7%–8% per year. This can lead to a much higher guaranteed income for life.

However, this isn’t a one-size-fits-all answer. If you have health issues or a shorter life expectancy, grabbing Social Security earlier might make more sense so you can enjoy the money while you can.

On the other hand, if you expect to live a long life (into your 80s or 90s) and can afford to wait, delaying Social Security and using your 401(k) as a “bridge” can maximize your total benefits.

Bottom line: In many cases, using your 401(k) before Social Security pays off due to the increased Social Security payouts later. But you must consider your health, financial needs, and tax situation.

Now, let’s explore why the order matters and how to make the most of each strategy.

⚠️ Avoid These Pitfalls When Timing Your Retirement Income

Getting the timing wrong can cost you. Here are some common mistakes to steer clear of when deciding whether to use your 401(k) before Social Security:

Pitfall 1: Claiming Social Security Too Early Without Necessity

Many people grab Social Security as soon as they turn 62, worried it might “run out” or just eager to start. But claiming benefits early locks in a permanently lower monthly payment.

If you don’t truly need the money at 62, taking Social Security early can mean missing out on hundreds of dollars per month later in life. Avoid this trap by considering whether you have other assets (like your 401(k)) to live on first. Waiting even a few years can significantly boost your monthly benefit for the rest of your life.

Pitfall 2: Draining Your 401(k) Too Quickly (or Too Soon)

On the flip side, some retirees get too aggressive with their 401(k) withdrawals. Taking out large chunks early in retirement can deplete your savings faster than you expect. It’s crucial to have a withdrawal plan (for example, following a safe withdrawal rate like 4% per year) so you don’t outlive your money.

Also, beware of early withdrawal penalties: if you tap a 401(k) before age 59½ (and you left your job before 55), you could face a 10% IRS penalty on top of taxes. Always ensure you’re withdrawing at a sustainable pace and after you’re eligible to avoid penalties. (For more on early withdrawals and penalty exceptions like the Rule of 55, see our early retirement withdrawals guide.)

Pitfall 3: Ignoring the Tax Bite (Tax Bracket Surprises)

Withdrawals from a traditional 401(k) are taxed as ordinary income. If you suddenly pull a big sum from your 401(k), you might push yourself into a higher tax bracket, meaning a bigger chunk of that withdrawal goes to Uncle Sam 💸.

Plus, starting Social Security and 401(k) withdrawals at the same time can make more of your Social Security taxable (since Social Security benefits become taxable above certain income levels). Ignoring these tax effects is a costly mistake. Plan your withdrawals strategically: sometimes it’s better to spread out 401(k) withdrawals over several years or do partial Roth conversions to manage your tax bracket.

Pitfall 4: Forgetting About RMDs (Required Minimum Distributions)

One common oversight is forgetting that the government will force you to take money out of your 401(k) eventually. These forced withdrawals, called Required Minimum Distributions (RMDs), kick in at age 73 (under current federal law).

If you haven’t used much of your 401(k) before then, you could be forced to withdraw large amounts later — which can spike your taxes and even bump you into higher Medicare premiums. By using some of your 401(k) in your 60s (before RMDs begin), you can potentially reduce the size of those future mandatory withdrawals and the tax hit that comes with them.

Pitfall 5: Overlooking Sequence of Returns Risk

The stock market doesn’t go up in a straight line 📉. If you retire and start withdrawing from your 401(k) during a market downturn, your balance can shrink fast — a danger known as sequence of returns risk. If you’re relying solely on your 401(k) early in retirement and the market dives, you might have to sell investments at low values, locking in losses.

One way to avoid this pitfall is to keep some safer assets (like cash or bonds) to draw from during bad market years, or to have Social Security income as a backstop. Starting Social Security earlier can reduce strain on your 401(k) in a downturn, while delaying it means you need a cushion in your investment withdrawal plan.

Pitfall 6: Not Accounting for Health and Longevity

Your personal health and family history matter. If you underestimate your longevity, you might claim Social Security early and later regret it when you’re still kicking at 90 but your 401(k) is running low. Conversely, if you have serious health issues and a shorter expected lifespan, delaying Social Security too long could mean you never fully enjoy the benefits you earned.

The mistake here is following a generic rule without taking your life expectancy into account. Be realistic about your health outlook: a healthy person in their 60s might lean toward using savings first and delaying Social Security, while someone with medical challenges might take Social Security earlier to maximize the years they receive it.

Financial Jargon Decoded: Key Terms You Should Know

Understanding a few key financial terms will help make sense of this topic. Here’s a quick glossary:

• 401(k): An employer-sponsored retirement savings plan that lets you contribute pre-tax money (traditional 401(k)) or post-tax money (Roth 401(k)). Funds in a traditional 401(k) grow tax-deferred, meaning you pay taxes when you withdraw in retirement.
• Required Minimum Distribution (RMD): The minimum amount the IRS requires you to withdraw from tax-deferred retirement accounts each year after a certain age. Currently, RMDs start at age 73 (and will move to 75 in coming years). If you don’t take your RMD, the penalty is severe (currently 50% of the amount you should have withdrawn, though recent law changes will reduce this penalty to 25% in many cases).
• Tax Bracket: The rate at which your next dollar of income is taxed. The U.S. has a progressive tax system with brackets – as your income increases, portions of it fall into higher tax rate categories. Smart retirement planning tries to minimize how much of your income falls into higher tax brackets by controlling the timing of withdrawals.
• Early Withdrawal Penalty: A 10% additional tax charged by the IRS if you withdraw from a retirement account (like a 401(k) or traditional IRA) before age 59½. There are exceptions – for example, if you leave your job at age 55 or later, you can withdraw from that employer’s 401(k) penalty-free (known as the “Rule of 55”). The penalty is meant to discourage tapping retirement funds too soon.
• Full Retirement Age (FRA): The age at which you qualify for 100% of your Social Security benefit (based on your lifetime earnings record). For most people today, FRA is between 66 and 67 years old, depending on birth year. If you claim Social Security before this age, your benefit is reduced. If you claim after this age (up to 70), your benefit is increased.
• Delayed Retirement Credits: The increase in Social Security benefits you get for each month you delay claiming past your FRA. This works out to about 8% per year. (For example, waiting from age 67 to 70 increases your monthly benefit by roughly 24% in total.) These credits stop at age 70 – that’s the latest age you’d want to start Social Security because after 70, there’s no further benefit increase for waiting.
• Cost-of-Living Adjustment (COLA): Annual increases to Social Security benefits to keep up with inflation. Social Security typically gets a COLA each year (for example, ~2–3% on average, though it can be higher in high-inflation years). This means the benefit you get, whether you claimed early or late, will usually rise each year with inflation.
• Longevity Risk: The financial risk of outliving your money. Essentially, it’s the risk that you live so long that you run out of savings. Delaying Social Security is one way to protect against longevity risk because it gives you a higher guaranteed income for life if you end up living into your 80s or 90s.
• Safe Withdrawal Rate: A guideline for how much you can withdraw from your retirement savings each year without running out of money. A commonly cited rule is the “4% rule,” which suggests you can withdraw about 4% of your portfolio in the first year of retirement and then adjust that amount for inflation each year. Using a 401(k) as a bridge to delay Social Security might require higher withdrawals early on, but the goal is that later your withdrawals can be smaller once the larger Social Security benefit kicks in (see our detailed post on safe withdrawal rates for more).
• Provisional Income (Social Security Taxation): A formula used to determine how much of your Social Security benefit is taxable. It includes your other income (like 401(k) withdrawals, pensions, etc.) plus half of your Social Security. If your provisional income is above certain thresholds (e.g. $32,000 for a married couple), up to 50% of your Social Security becomes taxable; above a higher threshold (e.g. $44,000 for a couple), up to 85% can be taxable. This matters because using a lot of 401(k) and Social Security at the same time can increase how much tax you pay on benefits. In contrast, if you rely solely on 401(k) first (no Social Security yet), you might avoid that issue until you start Social Security.

Real-World Scenarios: Delaying Social Security vs Taking It Early

Sometimes it helps to see the numbers in action. Let’s look at two hypothetical retirees making different decisions about their 401(k) and Social Security.

Scenario 1: Using 401(k) First to Delay Social Security

Meet Alice. Alice is 62 and just retired. She has a substantial 401(k) balance of $500,000. Alice’s Full Retirement Age is 67, at which point she’s entitled to a Social Security benefit of $2,000 per month. If she claimed at 62, she’d only get about $1,400/month (roughly a 30% reduction). But Alice is healthy and expects to live into her 90s, so she decides to delay Social Security until age 70 to get the maximum benefit. At 70, her monthly benefit will be about $2,480 (around 77% more than the $1,400 she’d get at 62).

How does Alice fund ages 62 to 70? She uses her 401(k) savings as a bridge. Let’s say Alice needs about $40,000 per year to live on. She withdraws this amount annually from her 401(k). Between 62 and 70, she’ll withdraw roughly $320,000 (plus maybe a bit more for taxes), reducing her 401(k) from $500,000 down to about $180,000 by age 70 (not accounting for any investment growth or loss in the meantime).

At age 70, Alice starts getting $2,480/month from Social Security (nearly $30,000 per year). This covers a big chunk of her $40,000 annual need, meaning now she only needs to withdraw maybe $10,000 per year from her remaining 401(k). This smaller withdrawal (about 2% of her remaining savings) is likely sustainable even if Alice lives to 90+. In fact, her 401(k) might even grow if investments perform decently, since she’s withdrawing very little after 70.

Outcome: Alice traded a chunk of her 401(k) in her 60s for a much higher lifelong income from Social Security starting at 70. By age 80, for example, Alice will have received over $300,000 in Social Security payments (10 years at ~$30k/year), far more than if she had taken it early. Her 401(k) balance at 80 might still be around $150,000 (depending on market performance), giving her a cushion. If Alice lives to 90, she maximizes her lifetime benefits and has the security of a hefty Social Security check that keeps coming every month, no matter what.

Scenario 2: Taking Social Security Early and Preserving 401(k)

Meet Bob. Bob is also 62 and retired with a 401(k) of $500,000. His situation is similar to Alice’s: at 67 his Social Security would be $2,000/month, but at 62 it’s about $1,400/month. Bob is more cautious about drawing down his 401(k). He worries about the stock market and wants to keep as much in his investments as possible. So Bob decides to claim Social Security right at 62 to get that $1,400/month coming in and reduce how much he needs to take from his 401(k).

With Social Security covering about $16,800 per year ($1,400 x 12), Bob only needs an additional ~$23,200 from his 401(k) each year to reach his $40,000 annual budget. This means from 62 to 70, Bob withdraws about $185,600 total from his 401(k), bringing it down from $500,000 to roughly $314,000 by age 70 (again, not counting investment changes). His 401(k) is a lot larger at 70 than Alice’s was.

However, Bob’s Social Security remains $1,400/month for life (plus inflation adjustments). At age 70, Alice was getting $2,480/month while Bob is still at $1,400 (they both would have received cost-of-living increases, but Alice’s base benefit is much higher). Bob must keep using his 401(k) to supplement his smaller Social Security. After 70, he might need to withdraw around $24,000 a year from his 401(k) (because Social Security covers less of his need). $24,000 is roughly 7–8% of his $314k nest egg at 70 – a much higher withdrawal rate than Alice needed from her remaining savings.

Outcome: By age 80, Bob would have received about $201,600 in Social Security (18 years at $1,400/month, ignoring COLA for simplicity). That’s significantly less than Alice’s ~$300,000 from waiting. Bob’s 401(k) withdrawals have also been heavier in his 70s, potentially shrinking his balance further. He could find himself with little left in his 401(k) by his mid-80s if he’s not careful. Bob benefited from preserving more of his savings in his 60s, but the trade-off is a smaller guaranteed income. If he doesn’t live past his mid-70s, he might come out ahead by taking Social Security early (since he got payments for more years). But if he lives to 85 or 90, he’ll likely receive less total income than Alice and risk depleting his 401(k) too soon.

📊 By the Numbers: Evidence on Taxes, Longevity, and Withdrawal Rates

Sometimes hard data can clarify the picture. Here are some key numbers and facts that shed light on using a 401(k) before Social Security:

• Social Security Growth: Social Security benefits increase by about 7%–8% for each year you delay claiming after age 62. This is an exceptionally high guaranteed increase. For example, someone whose benefit would be $1,000/month at 67 could get roughly $770/month at 62, or $1,240/month at 70. Waiting from 62 to 70 means a ~77% higher monthly check. Few investments can guarantee that kind of return, which is why delaying Social Security is often financially attractive.
• Break-Even Age: If you take Social Security early, you get more years of payments; if you delay, you get bigger payments for fewer years. The point at which the total dollars received are equal (early vs. delayed) is often around your early 80s. If you live beyond about 80–82, delaying Social Security generally means you’ll come out ahead in total lifetime benefits. If you unfortunately don’t live that long, taking benefits earlier would have given you more in total. This is why life expectancy is a crucial factor in the decision.
• Longevity Statistics: According to Social Security actuarial data, the average 65-year-old man can expect to live to about 84, and the average 65-year-old woman to about 87. Moreover, there’s roughly a 1 in 3 chance one member of a 65-year-old couple lives to 90. These stats highlight longevity risk: many of us will live longer than average. Planning for a long life (just in case) often means securing more guaranteed income (like a bigger Social Security benefit) to avoid outliving your savings.
• Withdrawal Rate Impact: Delaying Social Security means you’ll withdraw more from your 401(k) in the early years. In Alice’s case above, she withdrew about $40k per year initially, which was roughly 8% of her $500k – higher than the classic “4% rule.” However, once her Social Security started, her withdrawal rate dropped to around 2% of the remaining portfolio. This showcases a key idea: you might take higher withdrawals early on purpose, then much lower later. Financial planners consider this a viable strategy if it leads to more secure income. On the flip side, Bob’s strategy kept his withdrawals around 4%–5% initially, but later in his 70s he had to withdraw closer to 7%–8% per year, which can put more strain on a portfolio.
• Tax Considerations: Every dollar from a traditional 401(k) is fully taxable as income. Social Security, however, has favorable tax treatment – at most 85% of it is taxable, and for lower incomes, an even smaller portion is taxed (some retirees pay zero tax on Social Security). This means $1 of Social Security might net more after-tax spending money than $1 from a 401(k), especially if you keep your other income low. Using 401(k) money first in your 60s could allow you to later enjoy Social Security income that’s lightly taxed or even tax-free at the state level. Also, delaying Social Security until 70 gives you a window in your 60s to do Roth conversions or strategic withdrawals at possibly lower tax brackets. By converting part of your 401(k) to a Roth IRA during those years, you can reduce future RMDs and secure tax-free income later on. (Learn more in our guide to Roth conversions in retirement.)
• State Tax Differences: Remember that most states do not tax Social Security benefits. Meanwhile, many states do tax 401(k) or IRA withdrawals as ordinary income if they have a state income tax. For example, a retiree living in a state with income tax might pay state tax on 401(k) withdrawals at 65, but when they start Social Security at 70, those benefits could be entirely state-tax-free. This can tilt the scales slightly in favor of using taxable retirement savings first and saving Social Security for later, purely from a tax standpoint.
• Few People Delay Fully: Despite the advantages of waiting, only a small percentage of retirees delay Social Security all the way to age 70. Many start benefits at 62 or soon after. This could be due to need (they retired with insufficient savings) or fear of not getting anything if they wait. However, for those who can afford to delay (i.e. have other savings to use), studies have found that a significant portion could improve their retirement security by doing so. One study found about one-third of middle-income retirees would benefit from using their 401(k) as a “bridge” to postpone Social Security, yet most don’t take advantage of it. Understanding these numbers can help you avoid knee-jerk decisions and make a choice based on facts and your personal situation.

⚖️ Navigating Federal Rules vs. State Taxes

Retirement income decisions don’t happen in a vacuum – they’re affected by both federal rules and state tax laws. Here’s what to keep in mind:

Federal Regulations (Universal Rules):

• Social Security Rules: Social Security is a federal program with uniform rules nationwide. You can claim as early as 62, but if you do so and continue working, be aware of the earnings test: before your Full Retirement Age, if you earn above about $21,000 in a year, some of your benefits will be withheld (you get them later, after you reach FRA). Social Security’s benefit formulas (reductions for early claiming, credits for delayed claiming) are set by federal law.
• 401(k) and IRA Rules: The IRS governs when and how you can use retirement accounts. The age 59½ rule for withdrawals (and the 10% penalty for earlier withdrawals) is federal law. So is the Rule of 55 exception allowing penalty-free 401(k) withdrawals if you retire at 55+. Required Minimum Distributions at age 73+ are also mandated by federal law (these rules recently changed under the SECURE Act, which increased the RMD age from 72 to 73, and in 2033 it will rise to 75).
• Taxation of Benefits: Federally, Social Security benefits can be taxable above certain income thresholds (up to 85% of the benefit can be counted as taxable income). 401(k) withdrawals (traditional) are always taxable as regular income at the federal level. There’s no escaping federal income tax on your traditional 401(k) withdrawals, and eventually the RMD rules ensure the government gets its tax revenue.

State-by-State Differences:

• State Income Tax on Social Security: Most states do not tax Social Security at all. A few states do (sometimes with their own income thresholds or partial exclusions). This means that in many states, delaying Social Security could eventually give you an income source that’s state-tax-free.
• State Tax on Retirement Withdrawals: States vary widely on taxing 401(k) or IRA withdrawals. Some states have no income tax (so no tax on retirement income). Other states offer exclusions or credits for retirement income. For instance, one state might let you deduct a certain amount of pension or 401(k) income from state taxes each year. In a state that does tax 401(k) withdrawals but not Social Security, using your 401(k) first (and later enjoying Social Security) could save you state taxes overall.
• Public Pension and Other Considerations: If you have other retirement income (like a state pension), note that some states tax their own pensions differently than 401(k)s or IRAs. Always consider your particular state’s rules or consult a tax advisor. The key is that where you live can tilt the math of “401(k) vs Social Security first” due to tax differences.

In short, federal laws set the baseline for retirement ages, penalties, and Social Security adjustments, while state laws affect how much tax you’ll owe on the income you choose to take. Be mindful of both layers when planning your strategy.

Pros & Cons: Weighing 401(k)-First vs Social Security-First

Let’s summarize the advantages and disadvantages of each strategy side-by-side:

❓ FAQ: Your Top Social Security vs. 401(k) Questions Answered

Is it better to use 401(k) savings before taking Social Security?

Often yes. Using your 401(k) first can let your Social Security benefit grow larger. If you can afford to wait and expect to live longer, it generally pays off.

How much more will my Social Security be if I wait until 70?

Roughly 75% higher per month than if you started at 62. Delaying from Full Retirement Age (around 66–67) to 70 adds about 8% extra per year to your benefit.

What is the best age to start Social Security benefits?

There’s no one-size-fits-all. 70 maximizes monthly income. Mid-60s (Full Retirement Age) balances total years vs. amount. 62 is best only if you truly need it or have serious health concerns.

Are 401(k) withdrawals taxed more than Social Security benefits?

Generally yes. 401(k) withdrawals are fully taxable. Social Security is at most 85% taxable (and often less). This means a dollar from a 401(k) usually faces more tax than a dollar from Social Security.

Can I withdraw from my 401(k) at age 55?

If you retire (or leave your job) at 55 or later, you can withdraw from that employer’s 401(k) without the 10% early penalty. Otherwise, you typically must wait until 59½ to avoid penalties.

Can I work while collecting Social Security early?

Yes, but if you haven’t reached Full Retirement Age, your benefits might be reduced due to the earnings test. Once you hit Full Retirement Age, you can work without any reduction in benefits.

Should the higher-earning spouse delay Social Security?

Usually, yes. The higher earner’s benefit determines the survivor benefit for a spouse. Delaying ensures the surviving spouse (if any) receives a larger monthly benefit for life.

What happens if I delay Social Security but die early?

If you die before receiving benefits, you miss those payments (aside from a spouse’s survivor benefit). Any leftover 401(k) goes to heirs. That’s the risk of delaying.

When must I start taking Required Minimum Distributions (RMDs)?

For most retirees now, age 73. Take the first RMD by April 1 after turning 73, then yearly. (The RMD start age will rise to 75 for younger generations.)

Should I consider a Roth conversion while delaying Social Security?

It can be. If your income is low in early retirement, converting some of your 401(k) to a Roth at a lower tax rate can reduce future taxes and required withdrawals.