Retiring at 62 with $400,000: How 401(k) Withdrawal Strategy and Contribution Limits Shape Your Timeline

When you think about retiring at 62 with $400,000 in your 401(k), the question you’re really asking isn’t just “do I have enough?” but rather “under what conditions do I have enough?” That answer hinges on several pivots: how much you withdraw each year, when you claim Social Security, what you pay for health insurance before Medicare, and whether your savings history—shaped by 401(k) contribution limits over your working years—laid a solid enough foundation. Understanding these moving parts transforms the question from binary to strategic.

A quick read of the numbers shows that $400,000 under today’s prudent withdrawal assumptions generates roughly $12,000 to $14,800 in annual pre-tax income in your first year. That’s the floor. Whether it funds a comfortable retirement depends on how that figure stacks against your spending, your other income sources, and the choices you make in the early years.

The Reality Check: What $400,000 Actually Generates Under Current Withdrawal Rules

The older 4% rule—withdraw 4% of your portfolio in year one and adjust for inflation—suggests taking roughly $16,000 annually from $400,000. But research teams at major firms including Morningstar and Vanguard adjusted those benchmarks in the mid-2020s to reflect lower expected returns and increased caution around sequence risk. The new conservative starting point for many advisors sits at 3% to 3.7%, which translates to $12,000 to $14,800 per year before taxes.

Why the shift? Expected long-term returns on stocks and bonds have softened. Sequence-of-returns risk—the danger that poor market performance early in your retirement depletes your nest egg faster—looms larger when withdrawal rates are less forgiving. A lower initial withdrawal cushions that risk but means accepting modest annual income from the portfolio alone.

The math is straightforward: 3% of $400,000 = $12,000/year; 4% = $16,000/year. Neither figure replaces a typical pre-retirement income for most households. That’s why scenario testing matters. You need to see how this withdrawal amount combines with Social Security, how it withstands market stress, and where gaps emerge.

Social Security Timing: Your Most Powerful Lever for Lifetime Income

Claiming Social Security at 62 instead of waiting to your full retirement age (typically 66 to 67 depending on birth year) locks in a permanently lower monthly benefit. The reduction is substantial—often 25% to 30% less than if you waited. Yet claiming at 62 can be the right move if you need income now and have a clear plan to bridge the later-retirement years.

Running parallel scenarios is essential. In one, claim Social Security at 62 and pair it with moderate portfolio withdrawals. In another, delay benefits to 67 or 70 while relying more heavily on your 401(k) and other savings. Compare the total lifetime income under each path: claiming early often feels urgent but may leave you income-constrained in your 80s. Delaying requires either bridge work or spending restraint now.

Use the Social Security Administration’s online estimator to see your projected benefits at different ages. Combine those figures with your withdrawal projections to test which sequence yields the most comfort over your planning horizon.

The 62-to-65 Insurance Gap: Why Healthcare Costs Can Derail Your Plan

Medicare begins at 65. Those three years between 62 and 65 are expensive and often overlooked. You’ll need private health insurance, COBRA coverage from a former employer, or spousal coverage. Premiums during this window can run $400 to $800+ per month for individual coverage, and that’s before you meet any deductible or copay.

Out-of-pocket medical costs can spike unexpectedly. A single hospitalization or chronic condition diagnosis can push annual medical expenses from $3,000 to $15,000+ without warning. Budget explicitly for this window. If you haven’t modeled pre-Medicare health costs into your retirement income plan, your first shortfall will likely arrive here.

Once on Medicare at 65, costs shift. You’ll pay Medicare premiums (Part B and Part D for prescription drugs) and may purchase supplemental coverage. Deductibles and copays remain. Budget for $300 to $400+ monthly for Medicare and supplemental costs plus realistic out-of-pocket expenses. The Consumer Expenditure Survey can help you set realistic medical spending ranges.

Three Real-World Scenarios: Conservative, Balanced, and Work-Bridged Paths

Conservative path: Start with a 3% withdrawal ($12,000/year), delay Social Security to 67 or 70, and plan for low spending or stable other income (pension, part-time consulting). This minimizes the risk of running short late in retirement but requires discipline now and may feel financially tight in your early 60s.

Balanced path: Use a 3.5% initial withdrawal (~$14,000/year), claim Social Security at your full retirement age, and stay flexible. If markets perform well early, you spend a bit more; if they underperform, you trim spending. This balances current income needs with later-year protection but introduces sequence risk. You’re betting that early portfolio performance won’t crater.

Work-bridged path: Take only a 2.5% withdrawal ($10,000/year) from age 62 to 65 while earning part-time income or consulting fees ($15,000 to $25,000+/year). This dramatically reduces portfolio stress. At 65, shift to higher withdrawals and claim Social Security at 67 or later. Combining work with lighter portfolio withdrawals often makes $400,000 viable when the conservative approach alone feels pinched.

Run all three scenarios. See which aligns with your tolerance for risk and your lifestyle preferences.

Tax Treatment and Withdrawal Sequencing: Preserving More of What You Earn

Traditional 401(k) withdrawals are taxed as ordinary income. Your annual tax bracket during retirement depends on your total income: portfolio withdrawals plus Social Security plus any wages. Because Social Security taxation interacts with your other income, withdrawal timing can materially affect your tax bill.

Roth conversions in low-income years (say, between retirement at 62 and when you claim Social Security at 67) can be powerful. By converting some traditional 401(k) money to a Roth IRA in those lean-income years, you pay tax at a lower rate and reduce future taxable withdrawals. This requires upfront tax dollars but often yields higher after-tax income over your retirement.

Work with a tax professional to stress-test your withdrawal order and conversion timing. The goal is to smooth your tax bracket, minimize the year-to-year volatility in your tax bill, and maximize after-tax cash flow.

Building Your Stress Test: When Market Downturns Matter Most

Sequence-of-returns risk means that a market crash in your first five years of retirement hits harder than a crash in year 20. If your portfolio drops 30% at 62, you’ll be forced to sell stocks into weakness to fund living expenses—locking in losses and shrinking your recovery potential.

Test your plan against a hypothetical early downturn. Ask: “If my portfolio falls 25% in years 1 to 3 and then rebounds, does the plan survive?” Run this test with your chosen withdrawal rate. If the answer is “barely” or “no,” either increase your initial withdrawal rate slightly or build in a bridging strategy (work, spending cuts, or delayed Social Security). If the plan survives comfortably, you have room to optimize.

Also stress-test healthcare assumptions. What if unexpected medical costs add $200/month in years 2 to 4? Does the plan still hold? Small changes to health-cost estimates can expose fragility.

Action Steps: From Theory to Your Retirement Spreadsheet

Start this week by gathering three sets of numbers: your current account balance, your estimated annual spending including realistic health insurance premiums for ages 62 to 65, and your projected Social Security benefits at different claiming ages (use the Social Security Administration website).

Build a simple spreadsheet with these columns: Year, Age, Portfolio Balance, Annual Withdrawal, Social Security, Other Income, Total Cash Flow, Health Costs, and Taxes. Run it forward for 30 years under three scenarios: your conservative withdrawal rate, a moderate rate, and the work-bridged scenario. Where does the portfolio run out? When does it run out? Is it tolerable?

Check your results against recent research guidance from Morningstar and Vanguard. If your plan shows a portfolio depletion before age 95, that’s a red flag that warrants either spending discipline now, higher withdrawals later (more risk), or bridge work.

Monitoring and Adjusting After You Retire

Once retired, annual reviews become your safety net. Each January or February, compare your actual spending to your plan, review your portfolio performance, and recalculate your tax situation. Look for red flags: sustained underperformance, medical bills running 20%+ above budget, or spending creeping up year after year.

If you spot trouble early, the fixes are easier. A year of lower withdrawals or a temporary part-time consulting gig can reset your trajectory without forcing major lifestyle cuts later. If markets deliver strong returns early, resist the urge to inflate spending; instead, use gains to build a buffer or accelerate Social Security benefits by allowing you to delay claiming.

The Bottom Line: Is $400,000 Enough to Retire at 62?

For some, yes. Particularly if you have a pension, low spending needs, a spouse with Social Security or other income, or a willingness to work part-time until 65. For many others, $400,000 alone requires careful structuring and doesn’t feel comfortable without a bridging strategy.

The good news is that you don’t need one “right” answer. You need three scenarios, a stress test, and the clarity to know which trade-offs you’re making. If withdrawing at a conservative rate leaves you short, try delaying Social Security, adding part-time income, or trimming spending—then retest.

Remember: the 401(k) contribution limits that applied during your working years shaped how much you accumulated. If you’re at $400,000, you built with what was allowed. Now, in retirement, your withdrawal strategy and Social Security timing are the levers you control. Pull them thoughtfully.