AARP raises red flag on 401(k) savings and spending in retirement

American workers planning and saving for retirement often face two different, but related, challenges about how they think retired life is going to happen.

The first is the financial planning part. But, in my years of reporting on real-life post-career stories, I've found that the equally confounding next step frequently involves concerns about how to handle money that seems suddenly there to be spent.

At first glance, these competing priorities can seem to be a glaring problem, particularly regarding Americans' contributions to 401(k) plans and Individual Retirement Accounts (IRAs).

Fortunately, like many challenges, they can be solved.

AARP, the nonprofit group that advocates for Americans over 50 years of age, has some important words of advice for those trying to figure out both.

"What's the most important thing you can do to safeguard your retirement security? " AARP asks. "Contribute regularly to an employer-sponsored savings plan such as a 401(k)."

"A 401(k) plan is a great way to increase your retirement savings," AARP adds. "Your employer will deduct your pretax contributions from your paycheck, and your savings will be tax-deferred until you take withdrawals during retirement."

AARP notes another key tool to consider.

"The exception is a Roth 401(k), which is funded with after-tax dollars and from which withdrawals in retirement are tax-free," AARP writes.

"Thanks to some recent adjustments by the Internal Revenue Service, you can build that nest egg even bigger in 2026."

AARP outlines major 401(k) facts for 2026

Now that we're approaching the halfway point in 2026, we can take a serious look at what changes have been implemented and check where we are with 401(k) plans in the year in progress, AARP explains.

• Workers under 50 can contribute up to $24,500 to a 401(k) in 2026, reflecting an increase from the 2025 limit of $23,500.
• Savers aged 50 and older can add an extra $8,000 in catch‑up contributions, bringing their total possible 401(k) contribution to $32,500.
• Individuals ages 60 to 63 have a higher catch‑up allowance that lets them contribute an additional $11,250, for a maximum of $35,750.
• The SECURE 2.0 Act expands catch‑up limits for people ages 60 through 63 to encourage increased retirement savings.
• These contribution limits apply to other workplace retirement plans, including 403(b) plans, 457(b) plans, and the federal Thrift Savings Plan.
• Higher contribution caps support workers as pensions become less common, making personal savings and Social Security the primary sources of retirement income.

AARP flags concerns on 401(k), IRA income in retirement

"Once you reach retirement age, odds are good that you'll live another 20 years or more," AARP wrote. "You need to find the right balance between drawing down your savings for income and making the money last."

A common guideline for retirement withdrawals - often called the 4 percent rule - suggests taking up to 4% of one's investment portfolio in their first year of retirement and then increasing that amount each year to keep pace with inflation.

More on personal finance:

• Zillow forecasts big mortgage change for U.S. housing market
• AARP sounds alarm on major Social Security problem
• Dave Ramsey bluntly warns Americans on 401(k)s

Under this approach, someone retiring with $1 million could withdraw $40,000 in year one, and if inflation rose by 3 percent the following year, their withdrawal would increase to $41,200 to maintain the same purchasing power.

A Morningstar study suggests a nuanced strategy.

"Our 'base case' for starting safe withdrawal rates is 3.9%, but retirees can withdraw up to 5.7% of their starting portfolio balance by adopting a more flexible approach," Morningstar wrote.

Morningstar expands on safe retirement savings withdrawals

Recent research highlights several key findings about safe retirement withdrawal strategies, according to Morningstar.

• Morningstar's 2025 analysis identifies 3.9% as the highest safe starting withdrawal rate for retirees aiming for steady, inflation‑adjusted income over a 30‑year period.
• Major retirement risks - including early poor returns, early high inflation, retiring sooner, or facing high long‑term care costs - lower success rates unless spending is adjusted.
• Flexible withdrawal approaches can meaningfully raise the safe starting rate, with some methods reaching as high as 5.7%.
• Pairing delayed Social Security with a guardrails strategy can increase lifetime income while Social Security helps smooth out year‑to‑year variability.
• A TIPS ladder currently supports a 4.5% inflation‑adjusted withdrawal rate, though it fully spends down the assets unless other savings are available.
• Adding an immediate or deferred annuity can boost retirement income but reduces the amount left in the portfolio to grow over time.
  
  (Source: Morningstar)

Related: Dave Ramsey, AARP warn Americans on IRAs, Roth IRAs

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This story was originally published May 15, 2026 at 2:04 PM.