In general, over a working life, people tend to put an average of between 8 and 9 percent of their income into their 401(k)s. They aim to save enough to ensure that their total retirement income, including social security and any other sources of revenue, amounts to about 80 percent of pre-retirement income. But how should you set your 401(k) Contribution Targets?
If your last salary is $80,000, for example, you’ll want to retire and be able to enjoy an income of about $60,000 altogether. That’s your goal. So how much would you have to save to generate that income?
It’s possible to come up with a quick back-of-the-envelope calculation. In general, experts estimate that someone who retires at the age of 60 should have about 15 times their annual after-tax retirement expenses. If you’re hoping to live on $60,000 a year, you’ll need to have saved $900,000.
Few people, though, retire at 60. But you’re not much better off if you retire at 65. You’d then need 13 times your annual after-tax expenses. So that’s $780,000. To find out how much you’d need to save each month to reach that goal, you can use a savings calculator.
If you’re 45 and you’ve already saved $100,000, for example, you’d need to put aside about $1,270 each month at an annual yield of 5 percent. If you’ve only saved $50,000, you’d need to save about $1,600 a month.
But it’s a little easier than that. You’ll also have income from Social Security.
- What Is a 401(k)?
- How a 401k Plan Works
- 401k Contribution Limits
- The Difference Between a 401(k) and a Pension
- The Benefits of a 401k
- Four Alternative 401(k) Plans
- How Employers Should Choose a 401(k)
- What Is an Indexed Annuity?
- 5 Questions Employees Should Ask Before Choosing a 401(k)
- Contributing to Your 401(k) Plan
- Contribution Limits
- Matching Contributions
- Your Age
- How to Set Your 401(k) Contribution Targets
- Calculating Your Social Security Benefits
- What’s In Your 401k Plan?
- Track Your 401(k)
- The Present and Future Value of Your 401(k) and Why You Need to Know Them
- Rolling Over Your 401(k)
- You Don’t Have to Rollover Today
- Moving Your 401(k) to Your New Employer With a Direct Rollover
- Moving Your 401(k) to Your New Employer With a 60-Day Rollover
- Borrowing Funds from Your 401(k)
- Lend Yourself Interest-Free 401(k) Funds
- Borrowing from Your 401(k) to Buy a Home