'Did I save too much?': Your 401(k) may be at all-time highs, but big balances carry hidden retirement risks

Think a large 401(k) equilibrium guarantees a comfy retirement? It whitethorn not beryllium that simple. Many Americans presume that hitting the accustomed benchmarks, specified arsenic redeeming 10 times their salary, oregon pursuing the 4% rule, means they're successful the clear. But advisors accidental those rules tin miss a bigger issue: however your wealth is taxed, withdrawn and utilized implicit time.

"Nobody truly talks astir the math. It's save, save, save," Certified Financial Planner Robert Jeter told CNBC (1). "A batch of [retirees] saved diligently, but there's a paradox: Did I prevention excessively much?"

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One large lawsuit that comes on with status is the request to instrumentality required minimum distributions (RMDs) if your wealth is successful a accepted 401(k) oregon IRA. The existent property astatine which retirees indispensable commencement taking RMDs (2) is 73 (those calved successful 1960 oregon aboriginal tin hold until property 75).

"We tally into clients each the clip that did a fantastic occupation saving, but each of their savings are pretax, and they person income forced upon them," Patrick Fontana, a CFP based successful Dallas, wrote successful an email to CNBC. This tin propulsion retirees into higher taxation brackets if the income is much than what they request to unrecorded on, and besides into income-related monthly accommodation payments that mean Medicare premiums go much expensive.

One mode to negociate that hazard is by diversifying into accounts specified arsenic Roth IRAs, which let tax-free withdrawals that aren't taxable to RMDs.

Some workers besides hazard becoming "retirement affluent but currency poor" portion they're inactive earning, tying up excessively overmuch of their income successful tax-deferred accounts portion limiting their fiscal flexibility successful the present and now.

One illustration of being near precocious and adust tin beryllium recovered during the devastating Los Angeles wildfires that took spot successful aboriginal January 2025. Joon Um, a CFP astatine Secure Tax and Accounting successful Hayward, California, told CNBC that galore of his clients had to dip into their status savings during this time, successful bid to negociate unexpected expenses.

"It's not ever casual to usage that wealth close distant due to the fact that of taxes and penalties," Um said. "It's a reminder that portion status accounts are large for semipermanent savings, it's besides important to person immoderate flexible savings extracurricular of them for unexpected events oregon if idiosyncratic wants to discontinue earlier than planned."