Apr 9, 2026
Think a big 401(k) balance guarantees a comfortable retirement? It may not be that simple. Many Americans assume that hitting the usual benchmarks, such as saving 10 times their salary, or following the 4% rule, means they're in the clear. But advisors say those rules can miss a bigger issue: how your money is taxed, withdrawn and used over time.
"Nobody really talks about the math. It's save, save, save," Certified Financial Planner Robert Jeter told CNBC (1). "A lot of [retirees] saved diligently, but there's a paradox: Did I save too much?"
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One major event that comes along with retirement is the need to take required minimum distributions (RMDs) if your money is in a traditional 401(k) or IRA. The current age at which retirees must start taking RMDs (2) is 73 (those born in 1960 or later can wait until age 75).
Retirees having 'income forced upon them'
"We run into clients all the time that did a fantastic job saving, but all of their savings are pretax, and they have income forced upon them," Patrick Fontana, a CFP based in Dallas, wrote in an email to CNBC. This can push retirees into higher tax brackets if the income is more than what they need to live on, and also into income-related monthly adjustment payments that mean Medicare premiums become more expensive.
One way to manage that risk is by diversifying into accounts such as Roth IRAs, which allow tax-free withdrawals that aren't subject to RMDs.
Some workers also risk becoming "retirement rich but cash poor" while they're still earning, tying up too much of their income in tax-deferred accounts while limiting their financial flexibility in the here and now.
One example of being left high and dry can be found during the devastating Los Angeles wildfires that took place in early January 2025. Joon Um, a CFP at Secure Tax and Accounting in Hayward, California, told CNBC that many of his clients had to dip into their retirement savings during this time, in order to manage unexpected expenses.
"It's not always easy to use that money right away because of taxes and penalties," Um said. "It's a reminder that while retirement accounts are great for long-term savings, it's also important to have some flexible savings outside of them for unexpected events or if someone wants to retire earlier than planned."
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Bigger balances don't fix bad planning
Even if your 401(k) is growing, a lack of diversification across buckets could leave you exposed in retirement, especially as Americans rely more on these accounts instead of pensions.
After 44 years as an IT expert at IBM, Gregory Hutchinson, 72, retired in 2021 with close to $1 million in his 401(k). He and his wife also downsized to a smaller house in Snow Hill, Maryland.
Still, he wishes he had sought advice sooner.
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"There is so much you don't know — the taxes, expenses are coming from places you didn't know existed," he told CNBC. "I got lucky. The stock market was growing."
His experience highlights a key risk: a large balance can create a false sense of security. Without proper planning and diversification, retirees can face unexpected taxes and limited flexibility.
How to strengthen your retirement plan
According to Fidelity (3), the average 401(k) account balance is $146,400. The U.S. Department of Labor notes that about a quarter of workers with access to a defined contribution plan, such as a 401(k), do not contribute at all (4).
If you want to strengthen your retirement plan, focus on a few key moves. Start saving early and stay consistent. Calculate how much income you think you will need in retirement. Contribute enough to capture your employer's match and understand how your plan is invested. Avoid dipping into retirement savings early and have a plan if you change jobs, whether that means leaving funds in place or rolling them into an IRA.
It also helps to understand your Social Security benefits, which typically replace about 40% of pre-retirement income.
With Americans spending 20 years or more in retirement, the goal is not just to save more, but to manage those savings in a way that supports long-term financial stability.
Article Sources
We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.
CNBC (1) ; Internal Revenue Service (2) ; Fidelity (3) ; U.S. Department of Labor (4)
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Brian Baker is an Associate Editor with Moneywise. He has been a media professional for over 20 years.
