One of the most common dilemmas that people are confronted with when they are close to retirement is whether to start collecting social security or delaying it for a higher monthly benefit. But slowing social security often means relying more on other resources, such as 401 (K) or other savings to fill the gap. Is it worth it?
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“As for money decisions, it is a matter of sense of control and you do not feel anxious or stressed,” says Trever Houston, CEO of Clearpath Wealth Strategies in Frisco, Texas. “One of the most common questions is whether to wait for social security payments or to make money from the 401 plan (k) early.”
Here’s what to consider before you touch your 401 (k).
The delay in social security retirement benefits after the full retirement age (FRA) leads to a larger monthly amount of benefits up to 70 years of age.
“If you delay the admission of social security, the monthly check will increase by about 8% each year until you are 70 years old. This is equivalent to a salary increase each year,” Houston explained. “Quite nice, right? However, the waiting strategy only makes sense if you have enough savings, investment or your 401 (k) to cover your bills while you wait.”
Here are some important factors to consider:
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Life expectancy: Do you have serious health conditions? Have your parents and grandparents lived? If you are in good health, waiting can give you more monthly check. On the other hand, Houston explained that if your health or family history implies a short life expectancy, it may make sense to ask for social security early and use the money while you can.
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Monthly Life Costs: How much money do you need each month to pay your basic costs for life? “If you start taking out your 401 (K) too early, you can find yourself later, especially if the market decreases,” Houston said. This is called the risk of sequence that can violate your pension plan. A Vanguard 2024 report found that the average balance of 401 (K) for those aged 65 and over was $ 272,588. However, the average is often distorted by high income and the average balance is $ 88,488.
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Taxes: The money from your 401 (k) is taxed as ordinary income. According to Houston, the removal of large sums of money can push you into a higher tax group.
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Safety and security: Stable monthly income provides a sense of safety and security. “Some people like to conduct a social security check every month. It feels like a regular salary and this provides great peace of mind during retirement,” he said.