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Should you spend down your retirement to maximize your Social Security benefits?

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If you wait until age 70 to collect your Social Security benefits, your benefits will be 76 percent higher than if you had begun to take benefits at age 62.  This could mean that it might be smarter to spend down your retirement savings such as a 401(k) in order to delay taking your benefits.  (The benefit doesn’t exist if you are in poor health as you may not receive benefits for a long enough period to pay off.)  Another benefit to this plan is that you won’t have to pay as much tax on your Social Security when you do start collecting it.  Thanks to a combination of factors including the 8 percent annual increase in Social Security benefits until you reach age 70 and built in inflation-fighting increases, Social Security may be the most tax advantageous retirement option as no more than 85 percent of Social Security benefits are taxed (and significantly less for most) no matter how wealthy the taxpayer may be.  Prudential Insurance research indicates that even individuals with after-tax income in the mid-$90,000 range can see significant tax savings from this plan.

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