Assume considerable amount of time ( 2 decades) for retirement.
Hang around here, idle chatting.
Since typical career time frame is 35-40 years (from early-mid 20s to 60s), you seem to be asking what types of mid-career people may have accumulated 7 figure nest egg.
This is not very unusual in my opinion. A couple working as engineers in companies (does not have to be most high flying FAANG etc), can probably accumulate that by diligently contributing to their 401ks and brokerage accounts for 15-20 years.
If the same couple has also bought a house in Silicon Valley, my guess is they may have about 1M in home equity, in addition to 1-2M nest egg at their mid career stage.
If they are lucky/capable/ambitious enough to be working for top companies (FAANG etc), rising up the corpladder, and getting considerable stock, their nest egg is likely to be even bigger: $3-4M or so
Asking what you do with nest egg as penalty-free withdrawals has time.
Withdraw by paying penalty and taxes or let It grow?
Just like you diversify on investments, you need to diversify on your investment account type. You should work towards diversifying amount between Traditional IRA, ROTH IRA and after-tax Brokerage (and realestate). This way you can come up with different strategy for withdraw regardless of whatever tax plan government throws at.
I agree with @Boolean
Ideally, your nest egg should be distributed between Pre-tax accounts (401k, trad IRA) and post-tax accounts (cash, brokerage account, Roth IRA - which is a special case where money compounds without tax bite).
That way, you don’t have to take early distributions from the 401k or traditional IRAs, and can let them compound until at least age 60, if not longer
Why would you withdraw and pay penalties? You let it grow.
Many people take an early withdrawal from a 401k, paying taxes + penalty, when switching jobs. Big mistake, though there may be compelling life reasons to do so.
Some others, esp in Bay Area, might take either an early withdrawal of an IRA or a loan against a 401k, to make a down payment for home purchase. Again, a big mistake, though it is understandable when one has to make down payment of 400-500k to buy a starter SFH for 2-2.5M. That kind of money is hard to save up, outside of a 401k, unless one gets big stock grants from employer
Would think it not advisable to incur a 10% penalty plus taxes to withdraw early from 401k to payoff mortgage, when the mortgage rates are so low.
Mortgage rates are less than 3%, money in 401k will grow at 7% or more per year if invested in stock index fund.
Why? Mortgage rates are 3% or less and you can earn far higher returns just investing in SPY index fund.