9. Favorable Tax Treatment

Managing taxes in retirement requires strategy, and Social Security offers distinct advantages over traditional IRA or 401(k) withdrawals. If you pull $40,000 out of a standard 401(k), every single dollar is subject to ordinary income tax. Social Security is treated much more gently by the IRS.

Depending on your “provisional income,” a significant portion of your Social Security benefits—at least 15%, and up to 100% for lower-income retirees—is completely exempt from federal income taxes. Furthermore, the majority of U.S. states do not tax Social Security benefits at all. This preferential tax treatment means that a dollar of Social Security stretches noticeably further than a dollar pulled from a traditional retirement account.