Why Retirees With $500K Should Tap IRAs Before Social Security
The sequence in which retirees draw income can add six figures in lifetime wealth. Here's the strategic logic behind spending IRAs first.
For retirees sitting on roughly $500,000 in savings, the order in which they draw down assets and claim benefits is not a minor administrative detail — it is one of the most consequential financial decisions they will make. The core insight, increasingly championed by retirement planners, is counterintuitive: spend your tax-deferred IRA money first, and delay Social Security as long as possible, ideally until age 70.
The reasoning is rooted in how each asset grows — or doesn't. Social Security benefits increase by approximately 8% for every year a recipient delays claiming past full retirement age, up to age 70. That guaranteed, inflation-adjusted return is virtually impossible to match in a conventional portfolio. Meanwhile, traditional IRA balances are subject to Required Minimum Distributions beginning at age 73, and every dollar left untouched compounds taxable exposure over time.
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By drawing on IRA funds during the early retirement years — often called the "gap years" between leaving work and claiming Social Security — retirees accomplish two things simultaneously. They reduce the eventual RMD burden, which can push retirees into higher tax brackets later in life, and they allow their Social Security benefit to grow to its maximum value. For a household claiming at 70 versus 62, the monthly difference can be substantial enough to shift lifetime income by well into six figures, depending on longevity.
There is also a tax-efficiency dimension that makes this strategy particularly potent for middle-income retirees. In those gap years, taxable income may be low enough to allow partial Roth conversions at favorable rates — further reducing future RMD exposure and creating a pool of tax-free assets. The strategy essentially uses a temporary income trough to restructure the entire tax profile of a retirement portfolio.
Of course, this approach carries assumptions: it requires enough liquid savings to fund living expenses for potentially eight or more years without Social Security, and it works best for those in good health with reasonable life expectancy. But for the right household, sequencing withdrawals this way is less a clever trick than a structural advantage hiding in plain sight. Continue reading at Yahoo Finance.
