I Have $920k in My 401(k). What Should I Do With It When I Retire?
By ltcinsuranceshopper
March 14, 2025
What do you do with your 401(k) when you retire?
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Retirement is about balance. In retirement, many households generate a fixed income from personal savings and Social Security benefits. Retirees rarely have dependents or long-term saving needs (although of course estate planning is a factor), so they may be able to focus more on their monthly numbers.
Allocating your income streams, planning for taxes and balancing your spending are the core elements of retirement planning. So, let’s say you have $920,000 in your 401(k). What are your options for how to handle it when you retire, and how do you weigh these options?
Here’s how to think about this from the income side of the equation. If you’d like some personalized guidance on this topic, you can always consider reaching out to a financial advisor.
When it comes to retirement planning, the biggest question is “when” you are in your life. What that means is, are you younger, with more time to save, or are you older, with retirement approaching? How much time you have until retirement will largely determine your financial approach.
In general, a rule of thumb is this: The further you are from retirement, the more aggressive you can afford to be with your portfolio. You have time to recover from a potential downturn, so you can invest in more volatile assets, which may yield higher rates of return in the long-term. By contrast, the closer you are to retirement, the more conservative you might want to be. With less time until you need income, volatile assets can be more dangerous. This typically leads investors to take an equity-heavy approach earlier in life, shifting to a bond-heavy approach as they near retirement.
That said, some financial advisors may recommend higher-risk assets later in life. Retirements are getting longer as life expectancy improves, so you may need more money than ever. Just as importantly, downturns tend to last around six to 18 months before the market generally recovers lost value. This means that, on average, you could hold a stock-heavy portfolio into your mid-60s with time for it to recover before retirement.
You can get the professional opinion of a financial advisor but, in general, if you are younger, you will typically want to leave your 401(k) invested in higher-risk assets like securities, versus more conservative investments like bonds. For example, say that you’re 45 years old with 22 years before retirement. You might leave this money invested in an S&P 500 fund. At the market’s 11% average rate of return, even without any additional investments, you might have around $9.1 million saved by age 67.
On the other hand, if you’re older, you may want to begin looking at your specific retirement plan, including when you want to retire and what kind of income you want to generate. The last few years before you retire are, typically, the most important for a portfolio. This is the period in which you’ve hit maximum compounding returns, so choosing how to invest and when to leave work will be important.
For example, say that you’re 63 years old and you make $100,000 per year. You invest $10,000 per year (10%) in your 401(k) and get a hypothetical employer match for a total of $20,000 per year saved. At this point, you have shifted to a mixed-asset portfolio with an average 8% annual return. If you retire a little early at age 65, you might have $1.11 million in this portfolio. At age 67, full retirement age, you might have $1.34 million. By age 70, you could potentially have $1.75 million. At a 4% annual rate of withdrawal, that could generate $44,400 per year, $53,600 per year or $70,000 per year of income, respectively.
In short, when you choose to retire matters, a lot. Consider matching with a vetted fiduciary financial advisor if you’re interested in a professional opinion on your own retirement strategy.
Next you’ll want to consider how to manage your 401(k) when you leave work.
Retiring from your employer is known as separation from service (or a separation event). It basically means you are no longer with that employer. This gives you a few options for how to manage your workplace plan going forward. The worst option, although allowed, is to cash out your 401(k) and move it to a standard, taxed portfolio. This would trigger very heavy taxes, with no significant offsetting benefits, and is typically not advised.
Instead, your standard options are as follows.
Not all employers allow this, but many do. If this is an option, you can simply leave your 401(k) plan as it is. It will continue to be managed and administered by your employer’s program. You cannot make new contributions to the portfolio, but you can take withdrawals from it in retirement. You can leave this money in place until the portfolio’s value dips below $7,000, at which point you’ll need to withdraw it. You’ll also continue to pay any management fees or other costs associated with the plan.
If you’re happy with how your employer has managed your 401(k), this can be a good option. However, you won’t be able to manage your own portfolio, so make sure that you really are happy with how your account is managed.
When you retire, you can also roll your money into an individual retirement account (IRA) that you own. This will allow you to manage the portfolio. You can direct its investments and make new contributions if you have eligible earned income. This approach can also eliminate any management fees that your 401(k) administrator charged, although you will still have to pay any fees associated with specific assets.
Finally, rolling your money into an IRA has the advantage of disentangling you from your employer. This is not necessarily financially important, but it may be odd to still call up your old workplace 20 years later to check on your investments.
You can also choose to roll your money into a Roth IRA. This will eliminate income taxes in retirement, but you’ll instead need to pay income taxes on the entire amount converted up front.
You can also roll your money into an annuity. These are contracts typically sold by life insurance companies. In exchange for an initial investment, an annuity promises to return a structured monthly payment for life. For example, say that you are 67 and you put your entire $920,000 401(k) into an annuity. A representative contract might promise to pay you $6,286 every month for the rest of your life.
The key advantage to an annuity is certainty. Short of the insurance company going bankrupt, you are guaranteed payment (and even then, the government offers some protection). The key disadvantage is growth. Your annuity is fixed, so it will lose value against inflation year-over-year, and you cannot restructure the contract to take advantage of strong markets.
Once you understand how you want to manage your savings, consider your Social Security benefits.
For most retirees, your income will be a combination of your savings and your benefits. So it’s important to understand what benefits you should anticipate. SmartAsset offers a comprehensive benefits calculator you can use to estimate your future payments. You can also look up your actual credits at the Social Security Administration’s website.
Social Security benefits are based on two factors: the credits you earned during your working life and the age at which you begin collecting benefits. The more money you earned while working, the more benefits you will receive in retirement. The later you begin collecting, again, the more you will receive in benefits.
If you begin collecting at age 67, you will receive 100% of your benefits (“full benefits”). If you elect to collect benefits before age 67, you will receive reduced lifetime payments for each month early, down to a minimum of 70% of your full benefits at age 62. If you wait to collect benefits, you will receive increased lifetime payments for each month delayed, up to a maximum of 124% of full benefits at age 70.
At time of writing, the average Social Security benefit is $1,976 per month. If we assume you would receive this average at age 67, you could expect $1,976 per month, or $23,712 per year. At age 62, the earliest you can collect benefits, you would collect $1,383 per month, or $16,598 per year. At age 70, the longest you can wait, you would collect $2,450 per month, or $29,402 per year.
Don’t neglect to plan for expenses such as gap insurance and long-term care insurance. This also means anticipating three issues that many retirees overlook.
First, make a good tax plan. Retirement income is like all other forms of income, and you can only spend your post-tax money. Here, you have a 401(k). This means that you’ll pay income taxes on everything you take out of the portfolio.
Second, have a plan for inflation. At the Federal Reserve’s target 2% annual rate of inflation, prices will double roughly every 35 years. This means that by the end of a standard retirement, your purchasing power could fall in half unless you’re careful. So you’ll likely want to plan to increase your portfolio withdrawals by about 2% each year.
Finally, don’t make the mistake of underestimating your lifespan. The average retiree can expect to live until around age 85 to 87. Importantly, this is the average, meaning that about half the population should expect to outlive that number. This means that, statistically, it is entirely realistic that you will live into your early- or even mid-90s.
Budget your savings to last longer than you might expect, because you don’t want to run out of savings on your 90th birthday.
With $920,000 in your 401(k), what should your plan be during retirement? The answer depends on several different factors, including where you are in life and what you plan to do with your assets in retirement. But you can start to make a plan right now.
What should you do with your accounts once you do retire? Retirement isn’t just about holding on to wealth anymore, these days it’s about helping your money continue to grow. And here’s how you can do that.
A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area. You can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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March 14, 2025
