401(k) withdrawal – A survey found Americans approach saving in their 401(k)s with confidence, but when it comes to turning that money into retirement income, most are unprepared—raising fears that retirees may either run out of funds or play it so safe they enjoy retirement less
The money is sitting in 401(k) accounts. The problem is what comes next.
A new survey of more than 2,100 workers found that many near-retirees can do a good job building balances—contributing regularly, securing company matches—but struggle when it’s time to convert those savings into income that lasts through retirement.
On average, workers answered only about one-quarter of the survey questions correctly on retirement withdrawals. Nearly half couldn’t answer a single question correctly on that topic. And only 19% of near-retirees said they’ve even thought much about how they’ll withdraw retirement income from their 401(k) savings.
The stakes are not theoretical. Withdrawal decisions are crucial because. without a plan. retirees could run out of money—or feel forced into budgeting so tightly that retirement turns smaller than it should be. Experts warn that the difference between “enough” and “not enough” often comes down to how someone turns savings into a reliable stream.
Brendan McCarthy, head of Nuveen Retirement Investing, pointed to the scale of the issue. “With more than $8 trillion in assets spread across 725. 000 plans serving 80 million active employees. 401(k) plans are the primary employer-provided retirement savings vehicle in the private sector. ” he said. “Yet despite that scale. too many Americans arrive at retirement without a clear strategy for turning their savings into income that will last. And that gap has real consequences.”.
How retirees are supposed to calculate what to spend
People often start with rules of thumb and tools designed to reduce uncertainty. One widely cited approach is the 4% rule: withdraw 4% of a total retirement portfolio in the first year. then adjust that amount each subsequent year for inflation. Under this rule. a portfolio of stocks and bonds with steady returns is described as lasting about 30 years. assuming stable expenses.
There is also a 4.7% rule, presented as an updated version of the 4% rule. Some critics argue the original 4% rule has become outdated and too conservative. They say it doesn’t reflect the reality of more diversified portfolios that include assets beyond just stocks and bonds—and they point to the recently booming stock market as evidence of different conditions than the rule was built for.
Another framework ties spending to a person’s lifespan and healthspan—meaning not just how long someone might live. but how many healthy years they may have. One example described is Abacus Life. which with a signed HIPAA (Health Insurance Portability and Accountability Act) release from clients can tap medical records. identify people with similar health conditions and medical histories. and use those odds to estimate likely lifespan.
For those wary of sharing medical records, the survey’s discussion points to alternatives such as free online health tests available at the American Academy of Actuaries or through Abacus, intended to provide an estimate of how long people might live.
Still, those guidelines don’t fully resolve the central fear: uncertainty about whether the money will last as long as it needs to.
Surya Kolluri. head of The TIAA Institute. said many workers don’t correctly estimate how long they’re likely to live after age 65. “Nearly half of 401(k) employees underestimate how long they’re likely to live after age 65. and that misperception directly undermines their ability to plan for sustainable income. ” he said.
In his view, the problem is emotional as much as mathematical. “People need a guarantee,” Kolluri said. “They can’t be uncertain. They need to be assured that I and my spouse are taken care of.”
An education gap—and a different solution people can actually use
Because participants have difficulty understanding retirement withdrawals and estimating longevity, Kolluri argued that employers and retirement plan designers should provide more education and more options for converting retirement money into income.
One option that resonated with near-retirees in Kolluri’s research is the ability to convert 401(k) money into a type of annuity that automatically provides lifetime income.
The appeal isn’t abstract. During UAW contract negotiations in 2023 at the Detroit Three automakers, striking workers wanted the return of pensions. They didn’t get them. Instead. they received the option to set aside a chunk of their 401(k) savings into a lower-cost annuity for a more predictable stream of income in retirement.
Kolluri said that shift matters because the math changes. “If you buy lifetime insurance, you don’t need to calculate a withdrawal rate,” he said. “You always get money.”
He also acknowledged that the future likely won’t be purely annuity-based. “The future will probably be hybrid, with some money in the market plus lifetime income,” Kolluri said.
401(k) retirement withdrawals Nuveen Retirement Investing TIAA Institute annuities longevity 4% rule 4.7% rule healthspan HIPAA
So they just… don’t know how to take their own money out? wild.
It’s crazy because everyone says “just save” but nobody tells you the next step. I bet half of them will end up pulling too much early then blaming the market.
I thought 401k withdrawals were automatic like you pick a number and it keeps you set. But apparently only 19% even think about it? That seems like common sense though so idk.
Rules of thumb, “one-quarter questions correct,” whatever. Meanwhile these companies act like retirement planning is just “pick your fund and good luck.” And don’t tell me people are gonna “play it so safe” when everything is expensive now. I feel like the real problem is the taxes when you withdraw, not the withdrawal plan itself. Also $8 trillion sounds fake big to me.