How to Approach Social Security If You’ve Built a $1 Million Retirement Nest Egg

The best age to claim Social Security is different for everyone, but the savings you have in 401(k)s, IRAs, and other retirement accounts can play a major role in that decision.

People who have saved at least $1 million generally have more room to decide when to start benefits than those with smaller balances. That extra cushion can make it possible to wait until age 70 and receive the largest possible benefit, although delaying is not always the best move. Here is one way to think through the choice if you have a large nest egg.

What a $1 million portfolio can generate

Under the 4% withdrawal rule, a $1 million portfolio could provide about $40,000 a year. Still, every retiree’s situation is different, and other factors, including the size of savings and investment accounts, may call for a lower withdrawal rate.

That works out to roughly $3,333 a month. The average monthly benefit for a retired worker was $2,088.79 as of September. Together, those amounts total $5,421.79 a month, offering a useful snapshot of what a $1 million nest egg might mean in retirement.

Using savings to delay benefits

Some retirees use more of their savings first so they can postpone claiming Social Security. Benefits rise the longer you wait, especially after full retirement age. For each year you delay beyond full retirement age, your benefit increases by 8% a year, adjusted for inflation, for life.

After you begin Social Security, your benefit only grows through annual cost-of-living adjustments. Delaying is generally the best way to increase your government check.

Some people claim early because they need the income to cover basic expenses. A $1 million portfolio creates more flexibility, making it more realistic to wait until age 70 to file.

Taxes and Medicare expenses

Even though a $1 million nest egg can make it easier to delay Social Security, there can still be financial tradeoffs if most withdrawals come from a traditional retirement plan. Those withdrawals are taxed as ordinary income, and that can push income high enough to trigger Medicare surcharges.

Once annual income goes above $109,000 for a single filer or $218,000 for a married couple filing jointly, Medicare premiums begin to rise. In addition, as much as 85% of Social Security benefits may become taxable.

How spouses should think about it

Marriage adds another layer to the Social Security decision. If the higher earner waits longer to claim, the survivor benefit can be larger if that spouse dies first and the lower-earning spouse survives.

For that reason, higher earners may benefit from waiting as long as possible, ideally until age 70, before claiming Social Security. Planning withdrawals in the years leading up to that point can help identify the best strategy. A financial advisor can also help review the options and weigh the tradeoffs.