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I Need $3500 Per Month to Cover My Expenses. Should I Take Social Security or Tap My 401(k)?

Financial advisor and columnist Jeremy Suschak

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I’m retired and receive a pension but I still need to supplement my monthly income. My choices are to claim Social Security or start withdrawing money from my 401(k). I’m 64 and have $200,000 in a 401(k). My Social Security estimates are around $2,600 a month. I need $3,500 a month to pay bills. Your advice?

– Bob

The situation you face is common among current and soon-to-be retirees, but unfortunately, there is no one-size-fits-all approach. While I cannot cover all the factors you should ultimately consider, I’ll address a few that will hopefully help you make progress toward an eventual decision. I’ll also outline some of the tradeoffs between taking Social Security early and drawing from your 401(k).

A financial advisor who offers retirement planning services can help you answer this type of question. Connect with your advisor matches today.

The first and most obvious step you should take is to calculate your income gap. Presumably, you have already done this. But to facilitate some examples, let’s assume your pension provides $1,500 per month, leaving a $2,000 gap for either Social Security or your 401(k) to bridge.

Now, let’s look at the tradeoffs between the two options you raised, assuming a $2,000 per month income shortfall.

At your current age of 64, claiming the estimated $2,600 monthly benefit would fully cover your assumed income gap and even leave a surplus of about $600 per month. Again, this is a hypothetical based on the assumption that your pension pays $1,500 per month.

The immediate and obvious benefit of this option is that you do not have to withdraw from your 401(k), allowing that money to remain invested and potentially grow. However, taking Social Security at 64 locks in a permanently reduced monthly benefit.

If you wait until full retirement age (FRA) at 67, your benefit will increase by about 8% per year until you reach age 70. You should use the Social Security Administration’s benefit calculator to estimate what your benefit would be if you delay until your FRA or even age 70 since that could further inform your decision.

Any extra income generated by waiting to collect Social Security could make a meaningful difference later in retirement, particularly as costs increase due to inflation and potential healthcare expenses arise. This would also reduce the future burden on your 401(k) savings when the time comes to begin drawing on them.


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