Federal Early Retirement at 62: Can $400,000 in Your 401(k) Make It Work?

You’re thinking about federal early retirement at 62 and wondering if $400,000 in your 401(k) is enough to make the leap. The short answer: maybe, but it depends on several critical factors that go beyond just the numbers. A $400,000 balance typically generates modest annual income on its own—and success hinges on choices about how much you withdraw each year, when you claim Social Security, how you handle health insurance before Medicare hits at 65, and your overall spending needs.

This guide walks you through what’s realistic, what can derail your plan, and how to test whether federal early retirement at 62 actually works for your situation. Rather than relying on a single rule of thumb, you’ll learn to run multiple scenarios so you can see which decisions move the needle most.

The Reality Check: What $400,000 Actually Produces Each Year

Let’s start with the math. Using current withdrawal guidance, a $400,000 portfolio supports roughly $12,000 to $16,000 per year before taxes, depending on the strategy you choose.

• 3% withdrawal strategy: $12,000 annually pre-tax
• 4% withdrawal strategy: $16,000 annually pre-tax (older guidance; now considered less conservative)

Why the gap? The traditional 4% rule worked well for decades, but research teams including Vanguard and Morningstar shifted toward 3% to 3.7% starting rates in recent years. Lower expected investment returns and higher sequence-of-returns risk changed the math. That’s why many planners now start more cautiously.

On its own, that income is tight for most households. You’d need other income sources—Social Security, a pension, part-time work, or other savings—to fill the gap between what $400,000 produces and what you actually spend.

Three Money Levers That Change Everything

Your federal early retirement plan isn’t just about the portfolio balance. Three major decisions reshape the income picture dramatically:

Lever 1: How much you withdraw each year A lower starting withdrawal reduces the risk of running out of money if markets struggle early in your retirement. But it also limits your current spending. Stress-testing your plan with both conservative (3%) and moderate (3.5%–4%) withdrawal rates shows you how tight the margin is.

Lever 2: When you claim Social Security Claiming at 62 gives you cash now but permanently reduces your monthly benefit compared with waiting to full retirement age (typically 66–67) or delaying further. This choice can swing your lifetime income by hundreds of thousands of dollars. Running scenarios with different claim ages is essential before making the decision.

Lever 3: Health insurance costs before 65 and out-of-pocket spending after Between age 62 and 65, you need private coverage, COBRA, or a spouse’s plan because Medicare doesn’t start until 65. Those premiums are often overlooked in retirement planning but can be a major cash drain. After Medicare kicks in, premiums, deductibles, and supplemental costs continue. Underestimating these expenses is a common reason early retirement plans fail.

The Social Security Timing Game: When You Claim Matters

Social Security is often the biggest decision in federal early retirement. Claiming at 62 versus waiting to full retirement age or beyond can change your lifetime benefits by 30% or more.

Use the Social Security Administration’s tools to see your estimated benefits at different claiming ages. Then combine those estimates with your portfolio withdrawal projections. You’ll likely find that delaying benefits a few years, paired with lower portfolio withdrawals until Social Security starts, creates a more stable income stream than claiming early and relying heavily on withdrawals.

The trade-off: lower cash flow now but more security later, versus more cash now but a smaller safety margin.

The Healthcare Wild Card: 62 to 65 Is Expensive

The window between your early retirement at 62 and Medicare eligibility at 65 is often the most fragile part of the plan. Many retirees underestimate these costs or skip them entirely in their planning.

Before 65, expect to pay several hundred to over $1,000 per month for individual health insurance, depending on your health, location, and plan choice. After Medicare starts at 65, you’ll face premiums for Original Medicare, supplements or Advantage plans, and out-of-pocket costs for prescriptions and uncovered services.

Model realistic numbers for both periods. The Consumer Expenditure Survey provides benchmarks for typical medical spending in retirement. Building a modest buffer for unexpected medical bills is prudent.

Your Path Forward: Three Real Scenarios to Test

Rather than guessing, run three parallel scenarios with the same inputs except for key choices. This shows you which decisions matter most.

Scenario 1: Conservative Path

• Withdraw 3% from your portfolio ($12,000 annually pre-tax)
• Delay Social Security until age 67 or full retirement age
• Plan for higher health insurance costs before 65
• Plan modest supplemental health spending after Medicare

This path minimizes the risk of running out of money but requires discipline on spending or other income sources.

Scenario 2: Balanced Path

• Withdraw 3.5% from your portfolio ($14,000 annually pre-tax)
• Claim Social Security at full retirement age (typically 66–67)
• Use realistic health insurance and medical spending estimates
• Maintain flexibility to cut spending if returns are weak

This path balances current needs with some protection for later, but sequence-of-returns risk is higher if markets stumble early.

Scenario 3: Bridging with Work

• Withdraw only 2.5% from your portfolio ($10,000 annually pre-tax) until 65
• Take part-time income or consulting work to cover the gap
• Delay Social Security or claim at full retirement age
• Switch to higher portfolio withdrawals after Medicare starts at 65

This path often works best for federal early retirement because earned income reduces early sequence risk and lets your portfolio grow longer before you tap it heavily.

For each scenario, stress-test by assuming weak market returns in the first five years or unexpected medical bills. If a small change breaks your plan, you need a backup strategy—more bridge work, spending cuts, or delaying the retirement date.

How to Know If You’re on Track After You Start

Retiring at 62 doesn’t mean you’re locked into one plan forever. Annual check-ins are essential.

Watch for red flags:

• Portfolio balance drops more than expected
• You spend significantly more than your plan assumed
• Unexpected major medical bills
• Markets deliver sustained weak returns

When to make adjustments: Early on, consider temporary spending cuts, picking up limited paid work, or doing partial Roth conversions in low-income years rather than making dramatic long-term changes. If you see a major market decline right after retiring, pause aggressive withdrawals and revisit your assumptions before locking in a new withdrawal rate.

The Bottom Line: Is Federal Early Retirement at 62 Realistic for You?

Retiring at 62 on $400,000 in your 401(k) can work—particularly if you have low spending needs, other guaranteed income, or a clear plan to bridge the first few years with work. For many people, though, that balance alone produces modest annual withdrawals and demands careful choices about Social Security, healthcare, and taxes.

Your next move: Gather your current account balances, estimate realistic annual spending including health insurance and medical costs for ages 62–65, and build three scenarios using the framework above. Check your Social Security estimates at SSA.gov and verify Medicare premiums and out-of-pocket costs on Medicare.gov. Compare scenarios and see which decisions move the needle most for your situation.

Federal early retirement at 62 is achievable if you stress-test your assumptions, use conservative withdrawal defaults, and build in flexibility to adjust course. If the numbers feel tight, consider hybrid solutions—part-time work, delaying benefits, or partial annuitization—to reduce the risk of running short later.