The Math That Changes Everything: Modeling Retirement Income

Choosing to retire at age 62, 65 or 67 can result in significantly different financial outcomes for working Americans and their households. Retiring early at 62 may seem attractive, but it permanently reduces Social Security benefits by approximately 30% compared to waiting until full retirement age, which is 67. That smaller monthly payment then needs to be supplemented by faster withdrawals from 401(k) balances and other savings. On the other hand, delaying Social Security until age 70 can result in a benefit roughly 75% higher than claiming at 62. 

Scenario modeling can help people clearly see these tradeoffs. For example, a model might show that working three extra years not only increases Social Security benefits but also gives more time for retirement savings to grow and reduces the number of years of withdrawals. These compounding effects are not obvious, which is why decision-support tools are so important. They show that the choice to retire at 62 versus 65 is not just three years of income but possibly decades of added financial stability. 

Access additional Workspan Daily articles from this series: 

• Planning for Healthcare in Retirement: Why Employers Must Step Up 
• Take 3 Actions to Help Workers Turn Savings into Retirement Income 
• 4 Steps to Help Pre-Retirees Consider, Plan for Retirement Income 
• Financial Planning Tips Can Help Older Workers Budget for Retirement 

Phased Retirement and Bridge Employment: A Strategic Middle Ground 

Many employers and employees are rethinking the concept of a “hard stop” retirement. Phased retirement or bridge employment (working part-time, consulting or taking on new roles after an official retirement) offers a middle ground that can benefit both sides. 

From the worker’s perspective, phased retirement provides an additional income stream to postpone Social Security decisions, maintain health coverage and protect retirement savings. Even small part-time earnings can significantly slow the rate of 401(k) withdrawals. For employers, these plans help retain institutional knowledge, mentor younger workers and fill workforce gaps. 

Decision tools can simulate scenarios with phased employment:  

• What does working 20 hours a week for five years after retirement look like?  
• How does that income reduce the need for early Social Security claims?  
• How does it impact the sustainability of withdrawals from savings?  

Such modeling clearly demonstrates that bridge employment is not merely a lifestyle choice but also a financial lever that can significantly impact retirement readiness. 

The Role of Workplace and Provider Tools 

The retirement industry has made significant progress in providing decision-support tools for financial wellness and retirement plans. Many retirement service providers now include Social Security planning, retirement account withdrawal simulations and required minimum distribution (RMD) estimates in their digital platforms. 

Equally important, retirement income projection planning tools are becoming a key part of targeted pre-retiree financial wellness programs. These tools help individuals nearing retirement make informed decisions about how their savings and Social Security benefits can work together during their retirement years. One of the most promising advancements is the development of 401(k) and Social Security “income bridge” planning tools, which allow individuals to model strategies such as drawing down 401(k) balances for a few years to delay Social Security and secure a higher lifetime benefit. 

For example, an employee nearing age 60 can use these tools to evaluate how delaying retirement by two years or withdrawing from taxable accounts first might extend their 401(k) savings. Defined contribution plans are increasingly offering in-plan retirement income options — including annuities, hybrid target-date funds and systematic withdrawals — that can simplify retirement income distributions. 

Employers have an opportunity and a responsibility to make these resources more visible and usable. Incorporating retirement income planning into overall financial wellness programs helps employees see the link between short-term financial health and long-term income security. A financial wellness program that only covers budgeting and debt management is incomplete without retirement income modeling. 

The Adviser and Wealth Management Layer 

Outside the workplace, financial services and wealth management advisory firms also are expanding their skills in retirement income modeling. These firms often offer more personalized tools that combine multiple income sources: employer plans, individual retirement accounts (IRAs), brokerage accounts, Social Security, pensions and even home equity. 

Advisers can guide clients through scenario planning that includes market volatility, inflation and unexpected healthcare costs. The best tools show outcomes not as fixed predictions but as probability ranges, helping individuals understand how different strategies — such as delaying Social Security, adjusting withdrawal rates or buying annuities — affect the chances of maintaining income throughout retirement. 

Importantly, wealth management firms are now offering more comprehensive Social Security optimization tools. These tools evaluate various claiming strategies, spousal benefits, survivor benefits and the impact of continued work, helping clients maximize one of their most vital sources of retirement income. When combined with broader retirement income models, these tools help ensure clients are not leaving money on the table through inefficient Social Security decisions. 

Like the workplace environment, these adviser-led tools emphasize that retirement is an ongoing process rather than a one-time choice. Clients might need to reevaluate their decisions every few years as markets fluctuate, health situations change or family circumstances shift. 

A Call to Action 

The stakes are too high to leave retirement income planning to chance or intuition. Americans are living longer, taking more personal responsibility for their retirement outcomes, and facing complex choices about Social Security, 401(k) withdrawals, health expenses and longevity risk. Without scenario modeling, individuals risk making decisions alone — claiming Social Security too early, retiring before they are financially prepared or underestimating how long their savings will last. 

Employers, retirement providers and financial advisors should address this challenge with tools that are not only technically strong but accessible and easy to use. Scenario modeling should become as common as 401(k) contribution calculators and as intuitive as online mortgage tools. When integrated into workplace financial wellness programs and supported by advisory firms, these tools can shift the focus from “How much do I have?” to “How do I make it last?” 

Retirement income security relies not only on saving enough but on making informed, strategic choices before the transition begins. By equipping individuals with modeling and decision-support tools, employers can better equip their employees to enter retirement with clarity, confidence and sustainable income for life. 

Editor’s Note: Additional Content 

For more information and resources related to this article, see the pages below, which offer quick access to all WorldatWork content on these topics: 

• Employee Benefits 
• Total Rewards 
• Well-Being