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 my 401k? ›

Summary. While retiring on $400,000 is possible and above the average retirement savings, you may need to adjust your lifestyle expectations if this is your final retirement amount. If you want to retire early, $400,000 might be a difficult number to make stretch.

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 much money can I make if I retire at 62? ›

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. Your benefits will no longer be reduced regardless of how much income you have.

How much should a 62 year old have in retirement? ›

60s (Ages 60-69)
Age$50,000 salary$200,000 salary
62$435,000 - $530,000$2,420,000 - $2,945,000
63$455,000 - $555,000$2,520,000 - $3,065,000
64$475,000 - $580,000$2,625,000 - $3,185,000
65$500,000 - $605,000$2,735,000 - $3,305,000
3 more rows

How long would $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 #1 reason to take Social Security at 62? ›

When it might make sense to take Social Security at 62. You need the money now. You have health issues that may shorten your life expectancy, or you don't expect to live past your break-even point. You're receiving early retirement from an employer and the benefits end at age 62.

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

The short answer to this question is "Yes". If you've managed to save $300k successfully, there's a good chance you'll be able to retire comfortably, though you will have to make some compromises and consider your plans carefully if you want to make that your final figure.

How much do I need in 401k to get $2000 a month? ›

With the $1,000 per month rule, if you plan to withdraw 5% of your savings each year, you'll need at least $240,000 in savings. If you aim to take out $2,000 every month at a withdrawal rate of 5%, you'll need to set aside $480,000. For $3,000, you would aim to save $720,000.

Why retiring at 62 is a good idea? ›

Deadlines, long hours, and workplace conflicts can all contribute to physical and mental stress. The earlier you retire, the better it may be for your overall health. Research suggests that retiring earlier in life can help you stay healthier for longer.

What is the highest Social Security check at age 62? ›

The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2024, your maximum benefit would be $3,822. However, if you retire at age 62 in 2024, your maximum benefit would be $2,710. If you retire at age 70 in 2024, your maximum benefit would be $4,873.

Can I draw Social Security at 62 and still work full time? ›

You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefits. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.

Can I retire at 62 and still work full time? ›

You can get Social Security retirement or survivors benefits and work at the same time. But, if you're younger than full retirement age, and earn more than certain amounts, your benefits will be reduced. The amount that your benefits are reduced, however, isn't lost.

Is 500k enough to retire at 62? ›

The short answer is yes, $500,000 is enough for many retirees. The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.

What is the average Social Security check at 62? ›

According to recently released data from the SSA's Office of the Actuary, just over 590,000 retired-worker beneficiaries were receiving $1,298.26 per month at age 62, as of December 2023. That compares to about 2.11 million aged 66 retired-worker beneficiaries who were taking home $1,739.92 per month.

What is the ideal 401k balance by age? ›

However, the general rule of thumb, according to Fidelity Investments, is that you should aim to save at least the equivalent of your salary by age 30, three times your salary by age 40, six times by age 50, eight times by 60 and 10 times by 67.

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.

Can I retire at 62 with $500,000? ›

Retiring on $500,000 may be possible, but it probably won't be easy. In addition to aggressive saving and strategic investing, you'll need to be honest about your needs and thoughtful with your spending.

Is $3,000,000 enough to retire at 62? ›

Yes, if you've managed to gather $3 million to fund your retirement, you should find that in most cases, this is more than enough to see you through.

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