The complications of timing your retirement withdrawals just right.

I’m retired from my main career, but I also just retired from my second job. We would like to replace the $4,400 a month net from my second job. I’ve read several articles suggesting that if you have the choice you should take your 401K first and let Social Security grow until your 70. I will be 66 in July, my wife just turned 64 and is retired but not drawing anything yet. I’ve run the numbers and my 401K seems to support this scenario. A financial professional told my wife she should take SS first and let her 401K grow. I have pensions and medical care for life, I would appreciate a neutral viewpoint. — Phil


Based on what you’ve shared, I get the impression that you’re not the average guy, Phil. Twice retired, multiple pensions, and a 401(k) plus Social Security. Let’s not forget to mention medical care for life. When I grow up, I want to be Financial Phil.

So, you’re at a bit of an impasse. You’ve done your research and calculations, and those things suggest you can make the 401(k) first method work. However, professional advice was received suggesting the opposite approach (Social Security first and let 401(k) assets grow). Which is the correct approach?  With the information you’ve provided, Phil, I think you can make whatever decision you’d like. The best part, though? One option will be better than another, but maybe not for the reasons you’ve considered.

I’d encourage you to allow the following three things to guide you when making your decision:


  • How long do you think your retirement will last? – I think that’s the most polite way I can ask someone, “when do you think you’ll die?” As coarse as the question might be, the answer matters quite a bit. If you don’t have a history of family longevity on your side, it might be silly to wait to draw Social Security. You could consider your wife’s longevity prospects if she’ll take your Social Security benefit (if it’s larger than hers) when you pass, but otherwise, maybe taking it early makes more sense for you in this instance. If you’re planning on living into your 90’s, then waiting to draw Social Security makes more sense because you’ll receive a larger benefit for a longer period of time. The fact is, calculations can be run to determine the appropriate time for you to begin drawing Social Security in order to maximize your benefit and conserve your 401(k) based on assumptions you make. Please note, I said assumptions. You’ll make your best guesses and that’s that. In your case, my hunch is that either choice will work for you, but one will be better. A qualified financial professional will have the ability to run this calculation for you provide them with all of the appropriate information they require. If that’s all you’re looking for, the technically correct answer, there it is. I hope you’ll read on, though.



  • What is your ultimate goal? – Are you planning on leaving as much as you can to your children, grandchildren, or a charity? If that’s the goal, waiting to take distributions from your IRA/401(k) until you’re forced to with Required Minimum Distributions makes sense. If you want to live your best life now because tomorrow isn’t promised, maybe you take your Social Security at your full retirement age and start checking things off of your bucket list. Do you want to hedge on the prospect of a long life? Having a guaranteed income of two Social Security Incomes plus pensions and medical care for life is pretty attractive. Delaying the start of Social Security sounds prudent in this situation. If you haven’t given it any thought, take some time and think about it. What do you and your wife list as your top 3 goals from here on out? Which strategy makes the most sense to help you achieve those goals?



  • What does your budget say? – How much money does it take to run your household right now? I’m assuming you’re collecting on your pensions or will be shortly, and there is some shortfall between those benefits and what your monthly obligations are. Otherwise, you could just sit on your 401(k) and not start Social Security until you needed more cash flow. If that shortfall is a rather small difference, it might make sense to use only the money you need from your 401(k) in hopes that you don’t deplete the account too far. Why is depletion a concern? Life happens. You’ll inevitably run into a situation that requires more money than you’ve got coming in on a monthly basis. A new roof on your house, or a new car purchase, or maybe a medical procedure that isn’t covered by your arrangement. Any of those things could require a significant amount of money and it’s nice to have it available when you need it. Especially if life happens to you a few times in a row, as it’s been known to do.


There is one more potential solution to your question, Phil. Mix it up. I’ll warn you now, I’ve done a fair amount of speculating in the next paragraph.

Depending on what your budget tells you, maybe you take some distributions from your 401(k) in the short term to satisfy your budget. Then, when your wife reaches her full retirement age, she files for her Social Security benefit, and, if it’s large enough it covers your budgetary needs. You’d then be able to stop taking distributions from the 401(k) (hopefully entirely) while allowing your Social Security benefit to continue to grow because you’re relying on her Social Security benefit and your pension income. Once you reach 70, you file for Social Security and prepare to begin taking Required Minimum Distributions from your 401(k)/IRA accounts. If you pass before her, she’ll get to claim your Social Security benefit instead of hers and benefit from you waiting until 70 to start your benefit.

The last thing I’ll leave you with is uncertainty. No, not because of my answers. Rather, the uncertainty we face in the market. No one knows what the next month, year, or decade holds for our financial markets. There is no guarantee that your 401(k) will grow between now and the time you’re 70. In fact, if you were to begin using your 401(k) to supplement your monthly income and the value of your investments were to go down, that’s quite a bit of stress on a portfolio. Would you be comfortable in that scenario? I can’t answer that one for you, Phil. Ideally, you’d be able to stop taking distributions from your 401(k) in order to let it recover from the downturn. That may require you starting Social Security earlier than you anticipated. That’s not the end of the world, it’s just not what you planned on. Uncertainty. On the other hand, If the markets go up, then everyone is happy. Especially you, who just entered into retirement.

I encourage you and your wife to start talking. Figure out what you want the next 5, 10, 20+ years to look like. Once you have a grip on that, then look for your solution. Based on what your shared plans are, I think one option will stand out from the other.

Good luck to you and your wife. Enjoy retirement!

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