Vishesh Raisinghani

Sat, Jun 7, 2025, 4:31 AM4 min read

On paper, drawing down your 401(k) to delay Social Security benefits seems like a clever maneuver. After all, the monthly benefit check grows larger every year that you manage to delay retirement.

However, there’s more to consider than just the size of the monthly payout. Here’s why you, and perhaps your financial advisor, should take a closer look at all the other variables that can impact your retirement income.

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A simple calculation would have you believe that it’s best to delay collecting Social Security as long as possible.

After all, your monthly benefit checks can be roughly 30% higher if you wait until retirement instead of collecting at the earliest possible age of 62, according to the Social Security Administration.

However, this theoretical calculation is done in a vacuum and doesn’t consider any other factors.

Surprisingly, for some people taking Social Security early might actually be the better option when they consider all the other factors. Your total payout from the day you retire until the end of life could be higher. Here’s a better approach to make this decision.

An often-overlooked complicating (and key) factor in the simple calculation above is the opportunity cost of your 401(k) investments. Every dollar you withdraw from this account is one less dollar that could be compounding with interest payments or the stock market.

Over the past five years, the Vanguard S&P 500 ETF has delivered a compounded annual growth rate of 15.85%. In other words, you would boost your nest egg by roughly 30% in just under two years, outperforming the Social Security boost, which is capped.

Even if the stock market returns are significantly lower — say 5% compounded annually — your nest egg would be 30% larger within five and a half years. Besides, if stocks are in a deep bear market when you turn 62, it might not be the best time to sell your assets at distressed valuations.

Drawing down your 401(k) for monthly income might also be easier if you have a sizable nest egg to rely on. However, if your assets are limited, drawing down on it for several years could leave you feeling squeezed before you ultimately decide to take benefits.