I Have $1 Million and a Pension – Should I Use My 401(k) and Delay Social Security?

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If you have $1 million in a 401(k) and collect a pension, you may be in a position to delay Social Security until age 70. Doing so can boost your monthly benefit by up to 24%. However, delaying Social Security will mean you’ll have to rely more heavily on your savings for several years and potentially take a large bite out of your nest egg. So is the tradeoff worth it? A financial advisor can review income sources and expenses and help you budget for a comfortable retirement.

Funding retirement is about having enough income to cover your expenses. You may be ready to retire when your retirement income matches or exceeds your anticipated expenses.

For most people, the secure lifetime benefits from Social Security represent a critical source of retirement income. Additional income may come from pensions, retirement accounts like 401(k)s and IRAs, rental income from investment properties and part-time work.

On the expense side, essentials include housing, food and healthcare. Most people also have discretionary expenditures like transportation, entertainment, recreation, education and travel.

People with enough savings can afford to delay Social Security and use their nest egg to cover living expenses and discretionary spending. While delaying Social Security can increase your eventual benefits, it also means depleting savings faster. Making this decision will require you to consider all of your sources of income as well as factors like taxes, market fluctuations and inflation.

Your benefit grows by about 8% annually each year you delay Social Security beyond your full retirement age – up until age 70. So, waiting provides a significantly higher income later. On the flip side, if you claim your benefits before reaching full retirement age, you’ll get less.

For instance, if your benefit is $2,000 per month at full retirement age, claiming at 62 would cut it by 30%, leaving you with just $1,400 per month. Waiting until age 70, on the other hand, would boost your monthly check to around $2,480 per month – a 24% increase.

Financial advisors say it likely makes sense for many retirees to similarly delay taking Social Security if they have other income sources.

“The longer you can defer Social Security, the better because your benefit will grow by 8% annually,” said Jeremy Suschak, a certified financial planner (CFP) and head of business development at DBR & Co. in Pittsburgh. “Delaying also makes sense if expenses are low, debts are paid and assets can reasonably cover expenses.”

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