Millions of working Americans saving and planning for retirement inevitably confront a few major questions when maximizing and calculating their post-career income.
In my years of reporting on personal finance, I have frequently encountered both regular workers and financial experts who offer a wide range of answers — including when to collect Social Security and how to navigate the nuances of retirement accounts such as 401(k) plans and IRAs.
There is a good reason for this: People have different backgrounds for which varying approaches to using these financial tools exist.
Financial services firm Fidelity Investments warns Americans about the opportunity cost of taking Social Security early, a practice that results in lower monthly payments.
Social Security is often the only guaranteed, inflation‑protected income stream retirees can count on for life.
“Delayed retirement credits increase a retiree’s benefits,” wrote the Social Security Administration (SSA).
Given that reality, Fidelity asks, wouldn’t it be logical to maximize benefits by delaying one’s claim until full retirement age (FRA), typically 66 to 67 depending on one’s birth year, or even waiting until age 70?
“If you start taking Social Security at age 62, rather than waiting until your FRA, typically 66 to 67 depending on your birth year, you can expect up to a 30% reduction in monthly benefits with lesser reductions as you approach FRA,” wrote Fidelity.
“Waiting to claim your Social Security benefit will result in a higher monthly benefit, Fidelity continued. “For every year you delay past your FRA, you get an 8% increase in your monthly benefit. That could be up to a 24% higher monthly benefit if you delay claiming until the maximum age, which is 70.”
Fidelity sounds alarm on longevity and Social Security
It’s important to note that delaying one’s Social Security claim might not be right for everyone.
“Make sure to evaluate your claiming decision based on your expectations for longevity, your other sources of income in retirement, how much you’ve saved for retirement, and your investment strategy,” Fidelity urged.
Claiming Social Security earlier almost always results in permanently reduced monthly payments, which means a retired American will have less income to support themselves over the next 20 to 30 years or more.
“If you don’t have sufficient savings and need Social Security income to pay for your regular expenses immediately — or if you don’t have longevity in your gene pool and are managing a number of health issues, it may not make sense to delay claiming Social Security,” wrote Fidelity.
“Otherwise, delaying as long as possible until 70 is generally the better strategy.”
Fidelity explains 401(k)s, IRAs while collecting Social Security
Even though it involves a reduction in benefits, many people find that continuing to work while collecting Social Security is the approach that most maximizes their retirement income.
“If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2026, that limit is $24,480,” wrote the Social Security Administration.
“In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit. In 2026, this limit on your earnings is $65,160,” the SSA added.
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Another important benefit of continuing to earn income after one begins receiving Social Security is that they can keep contributing to their retirement accounts, including traditional IRAs, Roth IRAs, and 401(k)s.
Once an individual reaches age 73, required minimum distributions (RMDs) must begin from any traditional IRA. The first distribution can be postponed until the following year, although doing so results in two RMDs being taken within the same calendar year.
“Your traditional 401(k), or similar employer-based retirement plan, is a different story,” wrote Fidelity. “In general, you can continue stashing away money in your current employer-provided plan as long as you’re still working, even part-time, and you can delay taking your RMD until after you retire.”
“This additional savings can help, especially if your savings are running a bit behind your goals,” Fidelity continued.
“The combination of the added savings, tax-deferred growth potential, and the ability to defer tapping into your savings can be powerful, even at the end of your working career.”
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AARP clarifies 401(k), IRA distributions and Social Security
AARP, the nonprofit advocacy organization for Americans over 50, explains a few key points about 401(k) and IRA distributions while collecting Social Security.
- Withdrawals from retirement accounts do not count toward Social Security’s earnings limit, which is the rule that can reduce benefits for individuals who work while collecting Social Security.
- These withdrawals are excluded because the Social Security Administration considers only earned income — specifically gross wages from employment or net earnings from self‑employment — when applying the earnings test.
- Income drawn from retirement savings is not treated as earned income for this purpose.
- Other forms of nonwork income such as pensions, annuities, interest, and dividends are also excluded from the earnings limit calculation.
- Contributions to IRAs or 401(k)s cannot be deducted from income when determining whether the earnings test applies, since Social Security uses gross income before tax‑deferred contributions.
- Total income from all sources is considered when determining whether Social Security benefits are taxable and what portion may be subject to income tax.
(Source: AARP)
Related: Fidelity, Fed raise red flags on 401(k)s and IRAs