Your $400,000 Retirement Checklist at 62: A Decision Framework

Retiring at 62 with $400,000 in a 401(k) is possible, but success hinges on careful planning and realistic assumptions. Rather than relying on outdated rules of thumb, this retirement checklist walks you through the core variables, shows you what your money can realistically support, and provides a practical framework for testing whether early retirement works for your situation. The answer is conditional—it depends on your spending needs, Social Security strategy, healthcare costs before Medicare, and tax approach—but a thorough retirement checklist helps you evaluate whether the pieces fit together.

Defining Your Baseline: What $400,000 Actually Generates in Monthly Income

Start by understanding the income your portfolio can sustainably produce. Modern withdrawal guidance has moved away from the traditional 4 percent rule toward more conservative starting rates, especially as long-term return expectations have shifted. Using current industry guidance, a 3 percent withdrawal from $400,000 generates roughly $12,000 per year before taxes, while a 3.5 percent starting withdrawal yields approximately $14,000 annually. A 4 percent withdrawal would produce about $16,000, but this approach carries higher sequence risk in today’s environment.

Why the shift matters: firms like Morningstar and Vanguard updated their retirement checklist recommendations in the mid-2020s to reflect lower expected returns and the need for greater caution against early market downturns. A smaller initial withdrawal provides a buffer if returns lag in your first decade of retirement—critical because poor portfolio performance early on can sharply reduce your ability to sustain withdrawals later.

The practical takeaway is that $400,000 alone typically covers $1,000 to $1,300 per month in sustainable pre-tax income, which is modest. For many households, this means your retirement checklist must account for other income sources—Social Security being the primary one—or require significant spending discipline.

The Withdrawal Rate Question: From 4% to 3-7% and Why It Shapes Your Plan

Your choice of withdrawal strategy is not merely mathematical; it is a decision that shapes how long your money lasts and how much portfolio volatility you can tolerate. Three common approaches appear in retirement planning:

Fixed percentage withdrawal: You take the same percentage (say, 3.5 percent) each year, which adjusts automatically as your portfolio grows or shrinks. This approach ties your income directly to market performance, meaning your spendable amount falls when markets decline—a challenge if you were counting on that income.

Inflation-adjusted dollar amount: You set a dollar withdrawal target in year one and increase it annually for inflation. This provides income predictability but consumes portfolio principal faster in many scenarios, increasing sequence-of-returns risk. Sequence risk refers to the danger that poor returns early in retirement can permanently deplete your savings, even if markets recover later.

Partial annuitization: You use a portion of your $400,000 to purchase an income annuity that covers essential fixed expenses—say, your healthcare and minimum living costs. The remainder stays invested. This approach trades flexibility for certainty on the portion it covers and reduces sequence risk for your core needs.

Most financial advisors now recommend testing multiple withdrawal scenarios in your retirement checklist rather than committing to a single rule. Run projections at 3 percent, 3.5 percent, and 4 percent to see which one feels sustainable if markets weaken in year two or three.

Social Security Timing and Your Retirement Checklist: The Income Lever That Moves Everything

When you claim Social Security is among the highest-impact decisions in your retirement checklist. Claiming at 62 provides earlier cash flow but permanently reduces your monthly benefit—often by 25 to 30 percent compared with waiting to your full retirement age (typically 66 or 67, depending on birth year). Delaying further, to age 70, continues to increase your benefit by approximately 8 percent per year.

Here is how this affects your $400,000 balance:

• Claim at 62: You receive smaller monthly Social Security payments but can withdraw less from your 401(k) in your early years because Social Security fills some income needs. This reduces early sequence risk but locks in a permanently lower benefit.
• Claim at full retirement age: You receive a higher monthly benefit than at 62 but lower than at 70. This middle path requires you to rely more heavily on portfolio withdrawals between 62 and your Social Security start date, increasing early sequence risk.
• Claim at 70: You maximize your Social Security income but must sustain yourself entirely from your $400,000 (and other sources) from age 62 to 70. This is feasible only if you have bridging income or very low spending.

Your retirement checklist should include at least two Social Security scenarios: one where you claim early and one where you delay. Cross-reference each with your portfolio withdrawal plan to see which combination of choices creates the most stable income stream for your total lifespan.

Healthcare and Tax Planning in Your Retirement Checklist: Two Often-Overlooked Costs

Healthcare is frequently the largest planning blind spot for people retiring at 62. Medicare eligibility begins at 65, leaving a three-year gap during which you must secure private health insurance, COBRA (which extends employer coverage for up to 18 months), or coverage through a spouse. These premiums can range from $15,000 to $25,000 per year or more, depending on your age, location, and health status. Your retirement checklist must explicitly budget for these costs or face a critical shortfall.

After Medicare begins at 65, costs do not disappear. Medicare Part B and Part D premiums, deductibles, and out-of-pocket maximums still apply, typically totaling $3,000 to $6,000 annually for modest coverage. Using realistic healthcare cost assumptions is essential to your retirement checklist because underestimating can force painful withdrawal increases or spending cuts mid-retirement.

Tax treatment of withdrawals also reshapes your retirement checklist. Traditional 401(k) withdrawals are taxed as ordinary income, potentially pushing you into a higher tax bracket and increasing Medicare premium surcharges if your provisional income exceeds certain thresholds. Partial Roth conversions in years when your income is low can reduce future taxable withdrawals and improve long-term after-tax cash flow. A coordinated withdrawal sequence—taking taxable funds in some years, converting to Roth in others, and timing Social Security claims—can meaningfully enhance your net income compared with a simple sequential approach.

Stress Testing and Scenario Modeling for Your Plan: When Things Go Wrong

Your retirement checklist is only as strong as its ability to handle adverse outcomes. Stress testing means deliberately simulating weak returns in years one through five and observing whether your plan still functions. If a single bad market year forces you to slash withdrawals or delay Social Security, your retirement checklist may be too fragile.

Create at least two baseline scenarios: one conservative (3 percent withdrawals, late Social Security claim, higher healthcare cost assumptions) and one moderate (3.5 percent withdrawals, full retirement age claim, mid-range healthcare costs). Then run a stress test on each: simulate a 20 percent portfolio decline in year two and observe the outcome by age 75.

If your retirement checklist breaks under modest stress, you have several levers to pull:

• Lower your initial withdrawal rate
• Plan to work part-time between 62 and 65
• Reduce expected spending
• Delay Social Security claiming
• Use partial annuitization for core expenses

Three Pathways: Conservative, Balanced, and Work-Bridge in Your Retirement Checklist

Conservative pathway: Withdraw 3 percent ($12,000 annually) from your 401(k), delay Social Security to age 67 or 70, and maintain strict spending discipline. This minimizes depletion risk but requires a lower standard of living and works best if you have other income sources or very modest needs. Your retirement checklist here is straightforward: live on less, wait for Social Security, and let the portfolio grow.

Balanced pathway: Use 3.5 percent withdrawals ($14,000 annually), claim Social Security at your full retirement age (66 or 67), and maintain modest flexibility to reduce withdrawals in down markets. This balances current income needs with some protection for later years. Your retirement checklist includes annual reviews and willingness to make small adjustments based on market performance and spending trends.

Work-bridge pathway: Plan for part-time income between 62 and 65, reducing your 401(k) withdrawals to 2 to 2.5 percent ($8,000 to $10,000 annually) during those years. At 65, when Medicare begins and part-time work ends, increase withdrawals or claim Social Security to replace that income. This approach often reduces early sequence risk—your portfolio has more time to grow before you rely heavily on withdrawals—and can make a $400,000 balance more viable in practice. Your retirement checklist includes identifying realistic part-time income sources and phasing the income over time.

Building Your Retirement Checklist: Critical Inputs to Gather Now

Before running scenarios, collect essential information:

• Current account balance: Confirm your 401(k) value and any other retirement savings
• Expected other income: Document pensions, rental income, or other guaranteed sources
• Realistic annual spending: Include healthcare, housing, travel, and discretionary items
• Health insurance costs, age 62–65: Research actual ACA, marketplace, or COBRA premiums in your state
• Tax filing status: Single, married, or divorced affects tax brackets and Social Security calculations
• Life expectancy assumption: Use 90, 95, or 100 as a planning horizon to test different scenarios

Use conservative defaults for items you are unsure about. If you do not know your likely pre-Medicare health insurance cost, assume the higher end of your state’s ACA range. If you are unsure whether part-time work is realistic, run scenarios both with and without it.

Your Retirement Checklist: Actions to Take This Week

1. Gather baseline data:

• Pull your latest 401(k) statement
• Log into your Social Security account (ssa.gov) and download your benefit estimate at ages 62, 67, and 70
• Research Medicare premiums and costs on Medicare.gov
• Estimate your annual spending by reviewing the past year’s expenses

2. Choose withdrawal rates to test:

• Pick three starting rates: 3 percent, 3.5 percent, and 4 percent
• Calculate monthly income from each: ($400,000 × rate) ÷ 12

3. Model two Social Security scenarios:

• Scenario A: Claim at 62
• Scenario B: Claim at full retirement age or later
• For each, combine your Social Security benefit with portfolio withdrawal to estimate total monthly income

4. Add healthcare and tax costs:

• Budget pre-Medicare insurance costs for ages 62–65 (try $15,000–$20,000 per year)
• Estimate Medicare costs after 65 ($4,000–$6,000 annually)
• Estimate your tax bracket in retirement and calculate approximate taxes on withdrawals

5. Run a stress test:

• Project forward to age 67 assuming your chosen withdrawal rate and Social Security claim age
• Then simulate a 15 percent portfolio decline in year two and observe whether you still have adequate income
• If the plan feels tight, consider one of the bridging strategies (part-time work, higher withdrawal rate, or later Social Security claim)

6. Document your retirement checklist:

• Use a simple spreadsheet or work with a financial advisor to record your assumptions, outcomes, and decision logic
• Revisit your retirement checklist annually and adjust for actual spending, market returns, and life changes

Moving From Checklist to Action

Retiring at 62 on a $400,000 balance is realistic for some—particularly those with low spending needs, guaranteed income, or a clear plan to bridge the early years through part-time work or delayed benefits. For others, it requires meaningful trade-offs: lower spending, delayed Social Security, or a phased retirement with continued income.

Your retirement checklist is not a one-time exercise but a living framework for decision-making. Use it to compare scenarios, identify which variables matter most to your outcome, and build confidence that your plan can withstand reasonable adverse events. If you find your retirement checklist pointing toward tight margins or fragility, do not ignore that signal—instead, adjust one of the levers (withdrawal rate, work duration, spending, or benefits timing) to rebuild margin for error.

The goal is a retirement that is both sustainable and satisfying. A rigorous retirement checklist helps you achieve both by grounding your decision in realistic numbers and tested scenarios rather than hoping a single rule or guess will carry you through decades of retirement.