If you’re retiring with $4.2 million, you’re ahead of the game. The average retirement account balance among Americans 65 to 74 was around $609,000 as of 2022, according to Federal Reserve data.
If you use the 4% rule to manage a balance that large, you’re looking at annual withdrawals of $168,000, not accounting for any adjustments you might make for inflation. And that’s on top of whatever Social Security ends up paying you.
But it’s one thing to be retiring with $4.2. It’s another thing to be nearing retirement with that much money and a desire to finally spend your paycheck in full instead of saving a portion of it.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It may be that you’re 60 with $4.2 million, but you don’t want to retire until age 65 for different reasons — you enjoy your work, you like the routine, and you want to hold down a job for the health insurance until you’re eligible for Medicare.
That situation begs the question: Can you stop saving for retirement and simply leave your $4.2 million to grow for five more years? Or should you push yourself to save a little more during that final stretch?
The case for not funding your nest egg any longer
Approaching retirement with $4.2 million is quite a feat. And even if you were to start taking that money out at age 60, you’d be in a good position to stretch your nest egg as long as you need to.
If you’re not aiming to start spending that money for another five years, even better. At a conservative 4% return, a $4.2 million portfolio at 60 that remains untouched could grow into $5.1 million in five years.
Aaron Cirksena, Founder and CEO of MDRN Capital, thinks anyone in a situation like this is doing great. And he thinks it’s fine to stop saving at this point as long as you’re seeing the big picture.
“In most cases, if your retirement plan is solid and fully funded, it can make sense to loosen the reins a bit,” he explains. But he also has a few caveats.
“Inflation, healthcare costs, and tax law changes can all chip away at even a large nest egg. So before you switch from saving to spending, run the numbers on future income, expected withdrawals, and worst-case market scenarios. If the plan still holds up, then yes, you can enjoy the lifestyle you sacrificed for,” Cirksena says.
One thing he suggests is revisiting your projections annually and parking some of the “fun money” you’re no longer saving in a liquid, low-risk account.
“That way, if something shifts, you still have a buffer without tapping retirement accounts early,” he explains.
You may want to keep funding your nest egg for the tax benefits alone
While you don’t necessarily have to keep saving for retirement if you’ve accumulated $4.2 million by age 60, you should consider funding an account like a 401(k) anyway — not for the added savings, but for the tax breaks, explains Matt Hylland, Financial Planner, Investment Advisor at Arnold and Mote Wealth Management. This especially holds true if you earn a large income (which, if you have $4.2 million by age 60, may be the case).
“If you are high income, you may want to withdraw from other sources of savings to fund your increased living expenses, but still maximize pre-tax retirement savings for the tax deduction,” says Hylland.
Case in point: As Hylland explains, if you’re 50 or older, you can contribute $31,000 into a pre-tax 401(k) in 2025 and receive a deduction for that contribution. If you’re in the 32% tax bracket, that deduction is worth almost $10,000.
In a situation like this, it could be beneficial to still save in a traditional 401(k) because the tax deduction is so valuable, even if it means withdrawing more from other assets to do so, Hylland explains.
Hylland also suggests funding a 401(k) in this scenario for the employer match alone.
“If your employer offers a 401(k) match, you may still want to ensure you are saving the minimum required to get that full match,” he says. “Because that employer match is effectively a very high risk-free return on a small amount of savings, it will be worth getting that if you are able.”
Finally, Hylland says, if you’re going to increase your spending during your final few years in the workforce, make sure your retirement plan factors in those higher expenses if you anticipate retaining them going forward.
As he explains, “If you were saving $20,000 per year and spending $100,000 per year for living expenses, you may have calculated a retirement savings goal to fund $100,000 in spending in retirement. Now, if you decide to spend that $20,000 going forward, bringing your spending up to $120,000 per year, make sure you are running retirement projections with that new amount.”
A difference of $20,000 per year in retirement expenses could change your savings target, Hylland warns. And while you don’t necessarily have to keep spending at a higher rate once you stop working, as Hylland says, “That increase in lifestyle may be hard to back away from once you do retire.” For this reason, it’s important to re-run your numbers before you decide to stop saving for retirement completely.
Read More
-
I Retired at 65 With $7.8 Million and Feel Like I Over-Saved. My 40-Something Son Is on the Same Path. Should I Tell Him to Reconsider?We ask financial experts for advice.
-
Deciding on Senior Living? 10 Things You Should KnowSenior living options are no longer God's waiting room.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
Try This One-Minute Test to Uncover Hidden Health RisksFinding out this little-known fact about your body could reveal your risk of heart disease and more. It's a simple, free check for healthy aging.
-
Child-Free Cruises Perfect For Your Retirement CelebrationHow to find a bespoke ocean or river vacation for adults. Many of these options are smaller, charming river cruises, expeditions, or niche experiences.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
2026 Social Security COLA is 2.8%: What You Need to KnowThe SSA has announced the 2026 Cost-of-Living Adjustment (COLA), the new maximum taxable wage cap, and the earnings requirements for Social Security credits.
