'Did I save too much?': Your 401(k) may be at all-time highs, but big balances carry hidden retirement risks

Think a big 401(k) balance guarantees a comfortable retirement? It may not be that simple. Many Americans assume that hitting the usual benchmarks, such as saving 10 times their salary, or following the 4% rule, means they're in the clear. But advisors say those rules can miss a bigger issue: how your money is taxed, withdrawn and used over time.

"Nobody really talks about the math. It's save, save, save," Certified Financial Planner Robert Jeter told CNBC (1). "A lot of [retirees] saved diligently, but there's a paradox: Did I save too much?"

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One major event that comes along with retirement is the need to take required minimum distributions (RMDs) if your money is in a traditional 401(k) or IRA. The current age at which retirees must start taking RMDs (2) is 73 (those born in 1960 or later can wait until age 75).

Retirees having 'income forced upon them'

"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," Patrick Fontana, a CFP based in Dallas, wrote in an email to CNBC. This can push retirees into higher tax brackets if the income is more than what they need to live on, and also into income-related monthly adjustment payments that mean Medicare premiums become more expensive.

One way to manage that risk is by diversifying into accounts such as Roth IRAs, which allow tax-free withdrawals that aren't subject to RMDs.

Some workers also risk becoming "retirement rich but cash poor" while they're still earning, tying up too much of their income in tax-deferred accounts while limiting their financial flexibility in the here and now.

One example of being left high and dry can be found during the devastating Los Angeles wildfires that took place in early January 2025. Joon Um, a CFP at Secure Tax and Accounting in Hayward, California, told CNBC that many of his clients had to dip into their retirement savings during this time, in order to manage unexpected expenses.

"It's not always easy to use that money right away because of taxes and penalties," Um said. "It's a reminder that while retirement accounts are great for long-term savings, it's also important to have some flexible savings outside of them for unexpected events or if someone wants to retire earlier than planned."