May 21, 2026
A lot of Americans appear to be eager to leave the workplace grind behind.
Around 59% of them hope to retire before age 65, according to YouGov’s Clocking Out: U.S. Retirement Report 2024. Unfortunately, wanting to retire and being ready to retire are two very different things.
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Let’s say, for example, there’s a 60-year-old named Tim who is sick of working at this office job. He has $200,000 saved in his 401(k) account, and he wants to quit his job at the end of the year, but he isn’t sure exactly what he should do with his 401(k).
So what should Tim do to set himself up for a secure retirement?
Don’t retire until you understand your income sources
Before you even consider retiring or start thinking about where to put your money, you must make sure you have enough to retire on.
You don’t become eligible for Social Security retirement benefits until 62, and a claim before your full retirement age (FRA) will shrink your monthly benefits. In some cases, it may be best to wait until 70 to claim Social Security, in order to grow your benefit as much as possible and give yourself the best chance of maxing out your lifetime income. But there are arguments against that method as well.
Either way, for Tim and others thinking about retiring at a younger age, you’ll need a plan to support yourself without Social Security until at least 62 and ideally for longer. Since you most likely will need to replace about 80% of your pre-retirement income, and since most people don’t have pensions that offer guaranteed income from employers, a decent sized nest egg is necessary.
You can’t withdraw money from your retirement accounts too quickly, or you risk draining the balance to $0 while you still need the money. Many retirees follow the 4% rule, which says you can withdraw 4% of your account balance in year one and adjust each year for inflation. Following this rule is supposed to give you a good chance of your money lasting for around 30 years, although there are other options depending on your situation.
In this case, if Tim’s only financial resource is his 401(k), he would generate around $8,000 per year to live on. If he can’t rely on his spouse or family to cover bills and other expenses, including healthcare, this isn’t going to cut it. So, before Tim retires, he must make sure he has alternative funds.
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Options for your 401(k) funds
If Tim does have a plan to support himself when retiring at 60 with $200,000 in his 401(k), then he must decide what to do with the money.
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He may not actually have to move it. 401(k) administrators may let you keep the money in your current plan, especially if your balance is above a certain amount. This would mean he doesn’t have to research other options, and may have access to some investments he wouldn’t have otherwise. He may also benefit from Employee Retirement Security Act (ERISA) protections. But he also won’t have access to investment options outside of his plan and may owe high administrative fees.
He can also roll it over into an IRA, which shouldn’t have tax consequences if he keeps the money in the same kind of account (a traditional 401(k) into a traditional IRA). This opens the door to more investment choices and allows him to combine the money with other accounts. If he receives the money from his retirement plan, he must deposit it within 60 days (although sometimes there are exceptions to this rule). He can also do a direct rollover, meaning the plan administrator makes the payment directly to another plan, which is often better.
Whether he keeps the money in the 401(k) or moves it, he’ll need the right investment mix, as he’s now relying on this account for income. He may not want to invest too heavily in risky assets, as he has less time to recover from downturns. However, if he’s too conservative, his investments won’t have as much of a chance to grow over time.
Ideally, he’ll have cash in an emergency fund outside of his retirement account to cover around two years of living expenses. Then he can figure out the right investment mix for his situation and risk tolerance. One method is to subtract his age from 110 and invest that percentage in equities, then invest the rest in less volatile assets such as bonds and CDs.
There are also options such as buying an annuity, which is a contract with an insurance company that can provide guaranteed income for life. However, fees can be high, so Tim should research this option carefully.
Ultimately, none of these approaches is likely to help him turn $200,000 into enough to live on by itself. But if he’s done the math, has other income and is really ready to retire, keeping the money where it is, moving it into an IRA or potentially buying an annuity could all be possible moves that help Tim support himself during his retirement years.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
