One Way to Get a Higher Social Security Payout: Use Your Savings (2024)

A reluctance to spend

Another reason for the slow uptake of this strategy is that people think of a 401(k) as a sort of rainy-day fund. “There is a reluctance in some people to do this because they have mentally decided,My 401(k) is precious. I don’t want to use it up,” observes Eric Jaffe, a financial adviser and CEO of Mosaic Wealth Partners in Rockville, Maryland. This option is also shunned by some financial advisers whose fees are based on the number of assets they manage and who don’t want their clients to deplete their 401(k) holdings.

Even confronting the options for how to best pay for retirement is daunting, never mind deciding among them. “We spend almost our entire working lives saving. It’s an entirely different way of thinking that,Well, now I’m going to live off that,” Jaffe says. “There’s the psychological factor of,I’m no longer adding; I’m subtracting.”

Should employers build the bridge?

Scholars are now raising the idea of making this easier by having companies handle the logistics of a 401(k) bridge to maximize future Social Security income. Under their proposal, employers would draw money from retirees’ 401(k) accounts to provide them with an amount equivalent to what they’d get from Social Security, which they could then forestall claiming until they’re old enough to qualify for the maximum payout.

Other than the extra paperwork, there wouldn’t be any cost to businesses for doing this, and there are no regulatory reasons that they couldn’t, says Gal Wettstein, a senior research economist at the Center for Retirement Research at Boston College who has studied this proposal. It would, in fact, be another benefit that they could offer to attract new workers — an important consideration in a tight labor market.

Employers don’t see a demand for it, Wettstein adds, but according to a new report that he cowrote, when the strategy was explained to them, more than a third of 50- to 65-year-olds surveyed said they would take advantage of the 401(k) bridge.

Conducted last year, the survey included 1,349 respondents with 401(k) balances of at least $25,000 — the minimum that participants would need to put off taking Social Security, even briefly.

Recipients who retire at 62 but draw $1,900 a month from their 401(k)s would use up $23,000 in 401(k) savings for each year they delayed claiming Social Security.

Most of those surveyed appeared to have never heard of the idea, according to Wettstein’s report, which was released in February.

“The way we think about it is that it’s certainly something anyone could do on their own right now, or financial advisers can recommend it, but the details are a little hard to work out by yourself,” Wettstein says. “It would be possible for an employer to do that work for you, without you having to sit down and start calculating what your benefits would be if you delay versus if you don’t delay.”