More money in your 401(k) isn’t always a straightforward win — financial planners say big balances carry underappreciated risks.

Oversaving in a 401(k) while neglecting liquid assets can leave you cash-strapped during your working years.

In retirement, the IRS forces large withdrawals from sizable accounts — and those distributions can spike your taxes and Medicare costs.

The fix? A mix of Roth, taxable, and pretax accounts that lets you draw down savings strategically.

CNBC recently reported that Gregory Hutchison, 72, looks like a retirement success story. After nearly 44 years as an IT professional at IBM, he walked away in 2021 with close to $1 million saved in his 401(k). He and his wife sold their home, downsized to a waterfront house in Snow Hill, Maryland, and settled into a life of boating and dinners out.

“I don’t live a lavish life, but I have enough to go out to dinner every night, if I want to, with my wife,” he said.

Yet Hutchison is candid about what he got wrong. He wishes he had found a financial advisor sooner — and credits timing as much as discipline for where he ended up. “There is so much you don’t know — the taxes, expenses coming from places you didn’t know existed,” he said. “I got lucky. The stock market was growing.”

He’s not alone in that luck. Fueled by strong market returns and workplace features like auto-enrollment and automatic contribution increases, average retirement account balances climbed more than 10% in 2025, according to recent reports from Fidelity Investments and Vanguard.

But a growing nest egg isn’t without its complications, financial advisors say — particularly for savers who accumulate wealth without thinking carefully about how it’s structured across different account types.  

How much should you save for retirement?

“Nobody really talks about the math. It’s save, save, save,” said Robert Jeter, a Certified Financial Planner at Back Bay Financial Planning & Investments in Bethany Beach, Delaware.

Common rules of thumb — such as saving 10 times your salary by retirement or following the 4% annual withdrawal rule — offer a starting point. But advisors say those guidelines only go so far.    

Those benchmarks, however, only go so far. Pinning down a precise retirement number is notoriously difficult — and that uncertainty can push some households to the opposite extreme, cutting back sharply on spending during their working years in a bid to save as aggressively as possible, said David Blanchett, a CFP and head of retirement research at Prudential Financial.

Part of what makes retirement planning uniquely hard, Blanchett noted, is that the timeline is unknowable. Unlike saving for a fixed goal — a college tuition bill, say — retirees have no way of knowing how many years their money will need to last.

For many savers, retirement turns out to be more affordable than expected

Once payroll taxes and 401(k) contributions disappear from the equation, monthly expenses often drop considerably, Jeter said. Someone earning $100,000 a year, for instance, may find they can live comfortably on $75,000 in retirement — a figure that Social Security can help offset.

The trouble arises when nearly all of a person’s wealth is locked inside retirement accounts. With little else to draw on, an unexpected expense can force an impossible choice — and increasingly, savers are making the costly one. Hardship withdrawals from 401(k)s hit a record high last year, according to Vanguard, which tracks roughly 5 million accounts.

Most financial advisors strongly discourage tapping retirement funds early. The penalties are steep: a 10% early withdrawal fee on top of state and federal income taxes—a combination that can erase a significant chunk of what is taken out.     

Early retirees do have some options for accessing savings before the standard age thresholds — though the rules require careful navigation, financial planners caution.

One such provision, the “rule of 55,” allows workers who leave their employer at 55 or older — but before age 59½ — to take distributions from that employer’s retirement plan without triggering a penalty, according to Lawrence Pon, a CFP and CPA based in Redwood City, California. IRA holders, meanwhile, may qualify for substantially equal periodic payments, known as 72(t) distributions. “This takes careful planning, and there are a lot of rules to follow,” Pon said.

The burden of required withdrawals

For savers who built their wealth almost entirely in pretax accounts, retirement affluence can carry an unexpected cost. Once account holders reach a certain age, the IRS mandates that they begin taking required minimum distributions — whether they need the money or not.

“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,” said Patrick Fontana, a CFP based in Dallas. Those forced withdrawals can push retirees into higher tax brackets and trigger IRMAA surcharges — income-based adjustments that drive up Medicare premiums.

The problem can intensify for surviving spouses. When one partner dies, the required distributions typically remain roughly unchanged, but the survivor is taxed at single rates — a significantly less favorable arrangement, Fontana said.

The antidote, advisors say, is diversification across account types. Holding assets in a mix of pretax retirement accounts, Roth accounts, and taxable brokerage accounts gives retirees more levers to pull when managing income — and more ways to keep their tax bill in check. For those who earn too much to contribute directly to a Roth IRA, a Roth 401(k) — if offered by their employer — or a Roth conversion can accomplish something similar. Converting pretax funds to Roth means paying taxes now, but withdrawals in retirement come out tax-free.

‘Did I save too much?’

Even savers who did everything right can find themselves second-guessing their choices. Some of Jeter’s clients look back and wonder whether years of disciplined saving came at the expense of experiences — a trip they postponed, or help they could have given their children sooner.

“A lot of them saved diligently, but there’s a paradox: Did I save too much?” Jeter said.

It’s a tension the FIRE movement — Financial Independence, Retire Early — tends to brush past. Built on the premise that extreme frugality can unlock early financial freedom, the movement has devotees who save upward of 80% of their income.

“But what’s the fun in that?” said Blanchett, of Prudential Financial. “I don’t know I’d call it a risk, but it’s pretty close. I think it’s important to have a balance.”