You Want This Much in Your 401(k) by 50 To Guarantee Retirement
Ever wonder how much money you should have in your 401(k) at any given moment to ensure you are on track to retire? It makes sense you would. After all, no one wants to still be making copies for Stacy in HR well into their 80s. (No offense, Stacy.)
Yet, while it’s a good question to ask, it’s not an easy one to answer.
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For instance, let’s take someone who is 50 years old. How much should their 401(k) contain to put them on track for retirement?
Rough Template
Andrew Latham, CFP and content director at SuperMoney.com, said the standard rule of thumb is that you need six times your salary saved by the time you are 50 — with the goal of hitting 10 times your salary by the time you are officially retired.
So, to answer the question, the exact amount needed first depends on your salary.
If you make $40,000 a year, you theoretically need $240,000 in your 401(k) by the time you are 50. If you make $150,000 a year, you theoretically need $900,000 in your 401(k) by the time you are 50.
But the math is not actually that easy because your salary is not your full financial picture.
Other Factors To Consider
Linda Grizely, CFP and personal finance expert at Linda Grizely Ventures, LLC, explained that, in order to determine if you have saved enough, a few additional factors need to be considered: the cost of living where you will live, your lifestyle, your spending patterns, your health and, ultimately, your longevity.
“No two lives are the same,” Grizely said. “The number follows the life, not the other way around.”
Barry Cothran, founder of Vision and Hope Financial, LLC, said individuals must also account for how much Social Security they will receive, any pensions coming their way, pay increases, taxes and inflation.
Once all of the above is taken into account, only then would a 50-year-old have a rough idea of how much they need in their 401(k) in order to retire. And, since this number is personal and based on individual circumstances, there is no one, universal answer.
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What If You Come Up Short?
If, after doing the math, your plan indicates a retirement income shortfall by the time you are 50, don’t panic. You may still be able to retire at your desired date. Latham recommended pulling two levers at once:
Save More Aggressively
Latham recommended utilizing catchup contributions. These kick in at age 50 and let you add $8,000 per year to your 401(k) in addition to the $25,500 limit.
Shrink Your Cost of Living
Downsizing your living space is the fastest way to free up funds for your 401(k). For instance, if you have a $2,400 mortgage, try moving to a $1,400 rental.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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