Can I Retire at 62 with $1 Million in My 401(k)? A Comprehensive Case Study on Retirement Planning, Taxes, and Investment Strategies

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Approaching retirement with a healthy 401(k) balance is a great achievement, but knowing if it’s enough to retire comfortably—and sustain you through your golden years—requires careful planning. In this article, we’ll walk through a real-life case study of “Andy,” a client with $1 million in his 401(k) who wants to retire at 62. We’ll cover essential topics such as retirement income planning, tax strategies, and investment allocation.

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If you haven't checked out our YouTube channel yet, these case studies are a bit easier to follow by watching us screenshare our financial planning software:
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Andy’s Retirement Profile: The Basics
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Andy, like many diligent savers, has invested consistently in his company’s 401(k) plan, accumulating $1 million by age 60. Here’s a snapshot of his financial situation:
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• 401(k) Balance: $1 million (with $800,000 in traditional pre-tax and $200,000 in Roth 401(k))
• Emergency Savings: $25,000
• Home: Primary residence valued at $550,000, with $60,000 remaining on the mortgage, to be paid off by 2028.
• Income Goal: $4,500/month in retirement, with an additional $5,000 annually for travel in the first decade.
• Current Income: $125,000 annually with 10% contributions to his 401(k).
• Social Security: Andy is eligible to claim Social Security at 62, which would reduce his benefit, but his full retirement benefit at 67 would be approximately $3,000 per month.
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Step 1: Retirement Planning Analysis
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We start Andy’s retirement analysis with a Monte Carlo simulation, a statistical model that forecasts the likelihood of a successful retirement by running 1,000 different scenarios of investment returns, inflation rates, and expenses. Initially, Andy’s simulation indicated only a 27% probability of success if he retired at 62. Let’s explore how strategic adjustments to his retirement plan improved his outlook.
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Step 2: Adjusting Investment Allocation for Long-Term Growth
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Andy’s portfolio was heavily invested in a target-date fund that leaned conservative, with less than 50% in stocks and the rest in bonds. For a retiree planning for 25+ years in retirement, this approach could expose him to inflation risk, which erodes purchasing power over time.
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Updated Allocation Strategy:
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• Switch to a 70/30 Portfolio: Increasing his stock allocation to 70% allows for more growth potential, helping Andy’s assets keep pace with inflation. While Andy had a comfortable risk tolerance, he wasn’t aware of his conservative allocation, so we adjusted it to match his comfort level and retirement goals.
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This change boosted his probability of success to 49%, a significant improvement.
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Step 3: Delaying Retirement and Social Security Benefits
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After discussing options with Andy, we considered delaying his retirement until age 65. This adjustment would provide him with several benefits:
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• Medicare Eligibility: By waiting until 65, Andy can take advantage of Medicare, avoiding high healthcare premiums in his early retirement years.
• Mortgage Payoff: At 65, Andy’s mortgage will be fully paid, reducing his monthly expenses.
• Higher Social Security Benefits: Delaying Social Security from 62 to 65 increases his monthly benefit, providing a stronger financial foundation in retirement.
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Delaying retirement to age 65 raised his probability of success to 74%. This shows how even a few additional working years can dramatically improve retirement outcomes.
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Step 4: Social Security Timing—Weighing the Pros and Cons
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Claiming Social Security at the right age is a critical decision for retirees. For those with other financial resources, delaying Social Security until full retirement age or even later can provide a significantly higher monthly benefit. In Andy’s case:
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• Social Security at 62: Reduced monthly benefits.
• Social Security at 65: An increased monthly benefit, but still less than full retirement age benefits.
• Social Security at 67 (Full Retirement Age): Maximum monthly benefit available to him.
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Ultimately, Andy chose to claim at 65, as the additional working years made him more comfortable with this option. This approach provided him with a stable income floor while balancing his desire to retire earlier than the traditional full retirement age.
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Step 5: The Retirement Spending Smile Strategy
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A common assumption in retirement planning is that expenses will rise steadily with inflation. However, retirees often experience varying spending needs over time. The Retirement Spending Smile strategy addresses this by recognizing three distinct spending phases:
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• Active Early Years: Higher spending on travel and leisure in the first decade of retirement.
• Settled Middle Years: Reduced spending as retirees become less active.
• Later Years: Increased spending due to healthcare and potential long-term care needs.
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By applying this spending model, we aligned Andy’s budget to better reflect his retirement lifestyle, increasing his probability of success to 83%.
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Step 6: Tax-Efficient Withdrawal Strategies and Asset Location
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Once Andy enters retirement, the sequence and location of withdrawals become vital to reducing taxes and maximizing his savings.
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Asset Location: Optimize for Tax Efficiency
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Since Andy has both a traditional and Roth 401(k), we recommended he roll over his accounts into a Traditional IRA and Roth IRA upon retirement. Using asset location, we:
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• Allocate Stocks to Roth IRA: Since Roth IRA withdrawals are tax-free, we filled this account with stocks to allow for maximum tax-free growth.
• Allocate Bonds to Traditional IRA: By holding more conservative assets in his Traditional IRA, we reduce the impact of future required minimum distributions (RMDs), which could push Andy into a higher tax bracket.
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This adjustment alone added over $520,000 to his projected lifetime assets by reducing tax liabilities on withdrawals.
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Withdrawal Sequence: Tax-Deferred, then Tax-Free
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By structuring withdrawals in a specific order, Andy can minimize his taxes and extend the longevity of his portfolio:
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1. Withdraw from Traditional IRA First: Andy will draw income from his Traditional IRA, allowing his Roth IRA assets to continue growing.
2. Withdraw from Roth IRA Later: Once the Traditional IRA is depleted, Andy will begin drawing from his Roth IRA, taking advantage of years of tax-free growth.
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This strategy not only saved Andy on taxes but added over $300,000 to his projected end balance.
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Step 7: Evaluating Roth Conversions
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Roth conversions can be beneficial for some retirees by reducing future RMDs and allowing for tax-free withdrawals. However, since Andy is likely to be in a lower tax bracket in retirement than he was while working, Roth conversions wouldn’t yield significant tax savings for him.
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Instead, we recommended monitoring this option on a yearly basis, especially if tax brackets or Andy’s income needs change.
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Key Takeaways from Andy’s Retirement Plan
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Andy’s situation is a classic example of how small adjustments can yield significant results in retirement planning. By taking a comprehensive approach, we improved his retirement outlook from a 27% to an 83% probability of success. Here’s a summary of the strategic steps that made a difference:
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• Investment Allocation: Shifting to a 70/30 portfolio aligned with Andy’s risk tolerance and increased his potential growth.
• Retirement Timing: Waiting until 65 allowed Andy to eliminate mortgage payments, reduce healthcare costs, and claim higher Social Security benefits.
• Spending Strategy: The Retirement Spending Smile helped optimize his spending patterns, reflecting his lifestyle more accurately.
• Tax-Efficient Asset Location: Placing equities in the Roth IRA and bonds in the Traditional IRA helped reduce future taxes.
• Withdrawal Sequence: Drawing from the Traditional IRA first maximized tax efficiency and extended portfolio longevity.
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Each of these changes not only brought Andy closer to his dream retirement but also demonstrated the value of personalized financial planning.
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For anyone approaching retirement, understanding the interplay between retirement income planning, taxes, and asset allocation is vital. If you’d like more guidance on navigating your own retirement plan, reach out to us at Spark Wealth Advisors for a consultation. And for more insights on retirement and financial planning, subscribe to our channel for future updates.
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With the right strategies, retirement doesn’t have to be daunting—it can be a well-planned, fulfilling journey.

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