Can I Retire at 62 With $400,000 in a 401(k)? (2024)

Can I Retire at 62 With $400,000 in a 401(k)? (1)

You can retire a little early on $400,000, but it won’t be easy.If you have the option of working and saving for a few more years, it will give you a significantly more comfortable retirement. By waiting until at least age 67, you can collect more in lifetime Social Security benefits and your retirement account will have gathered quite a bit more steam.But if there’s a good reason to retire early and if you can live very modestly, you might make these numbers work. Here’s what you need to know. You can also work with a financial advisor if you’re wanting a more personal look at what you need to retire.

Social Security and Medicare At 62

At 62 you can take withdrawals from your retirement accounts, such as a 401(k), without incurring a special tax penalty. At the time of writing, the IRS allows you to withdraw money from tax-advantaged accounts starting at age 59.5, so you can take full drawdowns. However, age 62 is still considered early retirement. Your savings will have to last longer and will have less time to grow if you start taking them out at 62.

Age 62 is also when you can begin collecting Social Security benefits. However, Social Security works sliding scale. The full retirement age is officially 67. If you retire early, the government reduces your lifetime monthly benefits proportionally. If you retire later, up to age 70, the government increases those benefits.

By retiring at age 62, the earliest you can begin collecting Social Security, you will reduce your lifetime benefits by 30%. This means that for every $1,000 in benefits that you would receive at full retirement age, you will receive $700 instead. At age 67, the average Social Security benefit is $1,782 per month, so if you retire at age 62 average benefits will pay $1,247 per month.

Finally, Medicare will not kick in until age 65. This means that, in addition to any supplemental health insurance to cover the gaps in Medicare itself, you will need full health insurance to bridge the time between your employer’s coverage and Medicare coverage.

Income

In addition to Social Security benefits, the key question is how much you can reliably earn from your total retirement plan. With $400,000 in your 401(k), how much can you expect to draw down from that portfolio? Will it be enough to last throughout retirement starting at age 62?

The answer is, maybe. This money can generate a modest income that might be enough to pay your bills depending on your standard of living. But this will not be a generous income. It won’t leave you much room for either luxury or emergency spending.

To see how this works, let’s start with the average Social Security income adjusted for early withdrawals, which is just shy of $15,000 per year. Now, consider annual withdrawals from four separate portfolios: cash, bonds, stocks and annuities.

Note that this is simplified for the sake of demonstration. A standard retirement portfolio will typically hold a mix of assets weighted toward safe investments but with some long-term growth assets as well.

Cash

A cash portfolio means that you keep your investments in banking products like savings accounts and certificates of deposit. Generally speaking, at best these products will keep your portfolio consistent with inflation and usually not even then. We can treat this as effectively a 0% rate of return.Keeping your money in cash is not really an option here.

Using the standard 4% withdrawal rule, this would let us pull $16,000 per year from the retirement account. Combined with Social Security, this would give you $31,000 per year in pre-tax income. This isn’t much to live on and it would only last you about 25 years before your portfolio runs out. Starting at age 87, you will need to coast on $16,000 per year in Social Security benefits for the rest of your life.

Bonds

For the last 20 years, bond yields have hovered around 4%.Using this as a benchmark, a $400,000 portfolio invested entirely in bonds would generate $16,000 per year without touching the underlying principal. While you would need to ensure a portfolio of bonds that actually do pay that kind of interest rate, this could ensure a functionally indefinite retirement at $31,000 per year when combined with Social Security benefits, somewhat adjusted for inflation as Social Security benefits increase.

But… that’s still not a lot of money. And unfortunately drawing down on your principal will only help a little.Remember, by retiring at age 62 you are setting up for a long retirement. This money will need to last around 40 years to comfortably ensure that you won’t outlive your savings. This means you can probably boost your total withdrawals (principal and yield) to around $20,000 per year.This will give you a pre-tax income of $35,000 per year.

Stocks

When discussing retirement accounts, stocks can be tempting and dangerous.Historically the average annual return on the S&P 500 is a little over 10%.That’s why market-indexed funds are such a powerful tool for people saving up for their retirement. In retirement, this can be just as valuable. With a $400,000 retirement account, a 10% annual rate of return would give you $40,000 per year without ever drawing down on the principal.

You’d have to manage the fund, selling and buying assets to capture those gains, but combined with Social Security benefits this would give you a $55,000 per year indefinite income. You wouldn’t be rich, but that’s enough to be comfortable in many places. The problem is volatility. That 10% rate of return is the average rate of return in a highly unpredictable market.Some years you will receive much more, some years much less. In bad years you will even lose money.

Building a retirement strategy around stocks means managing that volatility. If you have the capacity to set aside money in good years to offset the losses in bad ones, then this approach might work. If not, you might find yourself riding out a recession on that $15,000 per year in Social Security benefits to avoid taking losses.

Lifetime Annuities

Lifetime annuities aim for the middle ground between stocks and bonds. This is a contract in which you provide an up-front investment and then the company (typically a life insurance company) guarantees you a fixed payment for the rest of your life. The contract typically pays more than bonds, but less than stocks and offers long-term security.

The earlier you invest in an annuity, the more it will pay over the long run. However, a popular approach is to invest in stocks and other growth assets while saving up, then convert your portfolio into an annuity upon retirement.

With $400,000, if you buy an annuity at age 62 and then retire, you might expect monthly payments of around $2,400 for the rest of your life. This comes to about $28,800 per year in guaranteed income according to one estimate. That’s better than bonds, but less than stocks and combined with Social Security you could expect about $43,800 per year in pretax income.

This isn’t much, but in most of the country, you can afford a modestly comfortable lifestyle with this amount of money. More importantly, you will not have to draw down on any principal. Short of the insurer collapsing with no bailout or rescue, which is unlikely, you can expect these payments to continue indefinitely. Of the options we discuss here, it is probably your best bet.

Retiring at 62 on $400,000

Can I Retire at 62 With $400,000 in a 401(k)? (2)

This plan can work … sort of. At age 62, with $400,000 in a 401(k) account, you can generate a livable income depending on how you structure your portfolio and where you choose to live.

Livable does not mean comfortable, however. This approach will not leave you much room for comfort or luxury and you might have a real problem in case of emergencies or unexpected expenses. What’s more, with this profile, you’re only a few years away from a quite comfortable retirement if you can wait just a little longer.

Say that you wait until full retirement age at 67. Invested in an S&P 500 index fund, that extra five years of investing could let your portfolio grow to more than $644,000.That could buy you a $46,000 per year annuity. Add in full Social Security benefits, averaging $21,300 per year and you can retire on more than $67,000 in annual, indefinite income.

This portfolio will allow you a tight, but possible, retirement at age 62. But it will allow you a comfortable retirement if you can hold on for just five more years.

Bottom Line

Can I Retire at 62 With $400,000 in a 401(k)? (3)

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

Social Security Tips

  • How you invest during your retirement really does matter. After all, these days you will likely spend several decades enjoying your life after work. That’s a lot of time for your money to grow if you can manage it well.

  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

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Can I Retire at 62 With $400,000 in a 401(k)? (2024)

FAQs

Can I Retire at 62 With $400,000 in a 401(k)? ›

This plan can work … sort of. At age 62, with $400,000 in a 401(k) account, you can generate a livable income depending on how you structure your portfolio and where you choose to live. Livable does not mean comfortable, however.

Can I retire at 62 with $400,000 in 401k? ›

If you have $400,000 in the bank you can retire early at age 62, but it will be tight. The good news is that if you can keep working for just five more years, you are on track for a potentially quite comfortable retirement by full retirement age.

How much should I have in 401k to retire at 62? ›

Fidelity says by age 60 you should have eight times your current salary saved up. So, if you're earning $100,000 by then, your 401(k) balance should be $800,000.

How long can I live on $400,000 last in retirement? ›

Safe Withdrawal Rate

Using our portfolio of $400,000 and the 4% withdrawal rate, you could withdraw $16,000 annually from your retirement accounts and expect your money to last for at least 30 years. If, say, your Social Security checks are $2,000 monthly, you'd have a combined annual income in retirement of $40,000.

What is the average 401k balance for a 62 year old? ›

Average and median 401(k) balances by age
Age rangeAverage balanceMedian balance
35-44$76,354$28,318
45-54$142,069$48,301
55-64$207,874$71,168
65+$232,710$70,620
2 more rows
Mar 13, 2024

Can I retire at 62 with 300k in my 401k? ›

The short answer to this question is, “Yes, provided you are prepared to accept a modest standard of living.” To get an an idea of what a 60-year-old individual with a $300,000 nest egg faces, our list of factors to check includes estimates of their income, before and after starting to receive Social Security, as well ...

Is $500,000 enough to retire on at 62? ›

Most people in the U.S. retire with less than $1 million. $500,000 is a healthy nest egg to supplement Social Security and other income sources. Assuming a 4% withdrawal rate, $500,000 could provide $20,000/year of inflation-adjusted income. The 4% “rule” is oversimplified, and you will likely spend differently.

Why retiring at 62 is a good idea? ›

Many senior adults struggle with conditions like heart disease, arthritis, and diabetes. Retiring in your early 60s will allow you to focus more on your health and lower your risk of developing these conditions. Retiring at the early age of 62 is also beneficial to those who already have serious health concerns.

What are the disadvantages of retiring at 62? ›

Some Cons of Retiring Early
  • It could be bad for your health. ...
  • Your Social Security benefits will be smaller. ...
  • Your retirement savings will have to last longer. ...
  • You'll need to find health insurance. ...
  • You might get bored and miss working.

Is retiring at 62 too early? ›

A worker can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30 percent. Starting to receive benefits after normal retirement age may result in larger benefits.

What is a good monthly retirement income? ›

Average Monthly Retirement Income

According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

What is the average 401k balance for a 65 year old? ›

Ages 55-64

After this age group, 401(k) balances can begin to fall, or at least grow at a slower pace, as even more people start tapping their accounts. The average balance for those 65 and older is $232,710; the median falls to $70,620.

What is the average Social Security check? ›

Social Security offers a monthly benefit check to many kinds of recipients. As of December 2023, the average check is $1,767.03, according to the Social Security Administration – but that amount can differ drastically depending on the type of recipient. In fact, retirees typically make more than the overall average.

Should I cash out my 401k at 62? ›

Yes, you can cash out your 401(k) plan at age 62, but it's likely going to cost you a pretty penny in federal, state, and local income taxes, depending on where you live. So much tax, in fact, that you'd be depleting your nest egg within the confines of a single tax year.

How much do I really need to retire at 62? ›

Key takeaways

There is no one-size-fits-all plan when it comes to how much you'll need to retire, but there are a few common benchmarks. Some strategies call for having 10 to 12 times your final working year's salary or specific multiples of your annual income that increase as you age.

How much does the average person retire with in a 401k? ›

Many U.S. workers retire by the time they reach 65. Vanguard's data shows the average 401(k) balance for workers 65 and older to be $232,710, while the median balance is $70,620.

How much money can you make if you retire at 62 without being penalized? ›

The limit only applies if you claim Social Security before reaching your full retirement age. The earnings limit increases (to $56,520 in 2023) for the calendar year in which you'll reach full retirement age. Starting in the month you hit your full retirement age, there is no longer an earnings limit.

Is $600,000 enough to retire at 62? ›

Say that you plan to retire at 62 with $600,000 saved. You expect to withdraw 4% each year, starting with a $24,000 withdrawal in Year One. Your money earns a 5% annual rate of return while inflation stays at 2.9%. Based on those numbers, $600,000 would be enough to last you 30 years in retirement.

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