Running out of money in retirement is one of the biggest fears for a reason. Few things are more jarring than realizing your savings may not last, especially after enjoying the early years of freedom. Returning to work can be painful, and many retirees struggle to earn anything close to their former salary or even perform the same job in their later years.
Even high-net-worth retirees feel the pressure. A large nest egg does not guarantee safety from medical emergencies, long-term care costs, or sudden market crashes. Unexpected events can shake even the most carefully built retirement plan and leave anyone second-guessing their strategy.
This is why a cautious approach pays off. A certified financial planner can help confirm that a withdrawal rate, investment mix, and long-term plan are truly sustainable. Being too conservative can limit growth, but the real danger is taking on too much risk or withdrawing far more than the classic 4% guideline. With market volatility continuing to pressure equity-heavy portfolios, many retirees are already choosing to rebalance and stabilize before the next downturn hits.
Enter the case of a 61-year-old new retiree
In this piece, we look at a 61-year-old retiree who recently left behind a $145,000 salary. They have built a strong financial foundation, including nearly $2 million in a 401(k), healthy balances in other tax-advantaged accounts, and a sizable amount in cash and CDs. With solid investments and plenty of liquidity, they appear well prepared for a long retirement.
Their spouse, age 55, is still working and actively maximizing retirement savings. Under 2026 IRS rules, the standard 401(k) elective deferral limit is $24,500, and because the spouse is 55, they qualify for an additional $8,000 catch-up contribution, bringing their total annual deferral limit to $32,500. However, because household earnings are high, SECURE 2.0 regulations now require that catch-up contributions be made on a Roth (after-tax) basis for employees whose prior-year wages with the plan sponsor exceeded $150,000, pushing this family toward tax-free savings buckets.
Beyond saving, the real pressure point is the significant cost of their child’s upcoming college years. Tuition and related expenses can snowball quickly. Fortunately, the retiree has enough liquidity in cash and CDs to fill any gaps that remain after using the 529 plan. Given ongoing market uncertainty, it would be wise to avoid tapping the equity portion of the portfolio for education costs. With major tuition bills approaching, a conservative withdrawal rate is the safer path.
What’s a good withdrawal rate to target?
The 4% rule is one of the most widely used guidelines for retirees. It suggests withdrawing 4% of the initial portfolio in the first year of retirement, then adjusting that amount each year for inflation. The original 1998 Trinity University research found this approach succeeded in roughly 95% of all 30-year historical periods using a balanced stock-and-bond portfolio. With roughly $3.6 million in investable assets, a classic 4% withdrawal would produce close to $145,000 per year, which is more than enough to support a very comfortable retirement. Notably, Morningstar’s December 2025 research put the optimal safe starting withdrawal rate for those retiring in 2026 at 3.9%, affirming that 4% remains a reasonable ceiling in the current environment.
Given ongoing market volatility and significant upcoming college expenses, leaning toward a 3% withdrawal rate is likely the safer path. This retiree is already positioned conservatively, with a large allocation to cash and CDs, which signals a lower risk tolerance and a strong desire to avoid running short. A 3% withdrawal rate on a $3.6 million nest egg provides about $108,000 per year, still a substantial income. Historically, 3% is considered very conservative, with long-term simulations showing portfolio survival rates well above 95% over a 30-year retirement, even in difficult markets.
The current high-yield environment for cash and short-term CDs further solidifies this approach. A meaningful portion of the $3.6 million can generate predictable income without forcing the premature sale of equity holdings. If annual expenses fall well below $108,000, there is room to withdraw even less. A range between 2.5% and 3.0% seems very reasonable. The working spouse’s active income provides an extra cushion if markets falter over the next five to ten years.
Strategic portfolio sequencing
To preserve equity capital during periods of market stress, this household can use a tiered withdrawal sequence rather than drawing proportionally from all accounts at once. In the near term, upcoming college tuition gaps can be funded entirely from cash and maturing CDs, avoiding the need to sell stocks in a downturn. Meanwhile, the working spouse’s income can cover standard household living expenses, allowing the core investment portfolio to compound unhindered. Finally, traditional 401(k) assets can be gradually converted to Roth accounts up to the top of the lower tax brackets, locking in current tax rates before Required Minimum Distributions become mandatory later in retirement.
Watch out for the Medicare IRMAA cliff
A critical consideration for early retirement spending is the long-term impact on healthcare costs. Specifically, the Income-Related Monthly Adjustment Amount (IRMAA) surcharges take effect at age 65 and can add thousands of dollars annually to Medicare Part B and Part D premiums. If this couple aggressively liquidates traditional 401(k) assets to fund early retirement travel or lifestyle upgrades, they risk spiking their Modified Adjusted Gross Income (MAGI) into higher surcharge tiers. For 2026, the first IRMAA threshold triggers at $109,000 for single filers and $218,000 for married couples filing jointly. Because Medicare uses a two-year lookback period, income decisions made today will determine 2028 premiums and beyond. Because IRMAA operates on a strict cliff system, crossing a threshold by even a single dollar results in substantial surcharges added to future premiums.
The bottom line
A withdrawal rate is not set in stone. Adjusting it based on market conditions or anticipated large expenses is often the smarter move. When stocks are under pressure and tuition bills are coming due, dialing back the withdrawal rate makes sense. It can always be increased later, closer to 4%, once comfort and confidence improve.
Editor’s note: This update corrects the SECURE 2.0 Roth catch-up wage threshold to $150,000 (the accurate 2026 IRS figure, up from the previously stated $145,000) and adds Morningstar’s December 2025 finding that 3.9% is the optimal safe withdrawal rate for retirees starting in 2026, alongside the IRMAA two-year lookback detail that ties today’s income decisions to future Medicare premium costs.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks