How Much Can I Save?
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We all have ideas for how we’d like to spend our retirement. Whether you hope to travel the world, buy an RV, or just spend more time with your family, the choices you make today will dictate the options available to you when you retire.
Fortunately, you don’t have to make a wild guess about how much to save. Use Ubiquity’s 401(k) calculator to get a clear picture of how your savings will stack up when you retire and how much you should be saving now to realize your goals.
The Ubiquity 401(k) calculator paints a picture of what your retirement savings will look like when you’re ready to stop working. Start by entering your age, household income, and any current savings.
Enter the amount you currently save towards your 401(k) each month, the amount you expect to spend each month when you retire, and the age you plan to retire. Then, Ubiquity’s 401(k) calculator will show you what to expect, and if there is a deficit. Unlike other 401(k) calculators, you might find online, the Ubiquity 401(k) calculator also accounts for hidden fees associated with your retirement savings that you may not be aware of.
You will see:
The Ubiquity 401(k) calculator includes a contribution calculator. By plugging in different numbers, you can see:
The Ubiquity 401(k) calculator also includes a tool to show you the impact of withdrawing funds from your retirement savings. Enter your age, the amount you’re planning to withdraw, and your state and federal income tax rate, and you can see what a withdrawal will mean for your retirement.
Make sure you understand: if you take an early withdrawal from your 401(k) before you retire, you can face stiff penalties—as well as potentially sacrificing significant value from those savings down the road.
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Money can get tight and emergencies happen. When you’ve built up a nest egg for yourself in a 401(k), It can be tempting to want to dip into those savings. In most cases, however, you should exhaust every other option before you do. Why?
If you’re younger than 59½, you’ll pay an additional tax penalty of 10% of the funds you withdraw. That’s a big penalty. If you withdraw $20,000 from your 401(k), for example, you will immediately lose $2,000 in tax penalties.
Note: the 10% penalty can be waived if you become permanently unable to work due to disability. There are also some variations on this rule for people who leave their employer after age 55 or who work in the public sector. Most people taking an early withdrawal from their 401(k), however, can expect to sacrifice 10% of the funds they withdraw this penalty. Not to mention missing out on the compound interest you would have if you would have left that money alone.
Remember, the contributions you make to your 401(k) plan come out of your paycheck before you pay taxes on that income. In fact, that tax savings is one of the major benefits of using a 401(k). When you take a withdrawal, however, those funds count as income for the current year. You will have to pay any federal and state income tax on those funds the same as you would for any other income.
If your 401(k) is provided by your employer, and your employer contributes to your retirement savings, you may lose some of those funds if you make an early withdrawal. Some employers use vesting schedules for contributions they make for their employees. Basically, even though the employer contribution shows up in your account, you don’t actually own those funds—and you can’t use them or take them with you to a new job—until you’ve worked a certain amount of time for your employer.
Say you’ve contributed $5,000 to your 401(k), and your employer matched that contribution, contributing an additional $5,000 to your retirement savings. Your 401(k) account balance may show $10,000, but if you’re only 30% vested, you only own 30% of that employer contribution: $1,500. So, the real total you can access is just $6,500. If you take an early withdrawal, in addition to taxes and penalties, you also lose the portion of your retirement savings that isn’t vested (in the case of this example, $3,500).
The biggest reason to avoid taking an early withdrawal from your 401(k) is that by withdrawing money now, you are losing out on all of the interest that money would earn if you left it in your 401(k) until you retired. As a very basic example, if you had $5,000 in your 401(k) today, and it grew at an average rate of 5% per year, it would be worth $10,441 in 20 years—more than double. If you withdraw those funds early, however, you’re not only facing a stiff tax penalty, you’re losing all of that additional growth.
You can use the 401(k) calculator to get straightforward, dollars-and-cents answers to many important questions about your retirement. When it comes to how much you ought to be saving, however, things aren’t quite so simple. It depends on your age, how many years you plan to work and, ultimately, on the kind of lifestyle you want to have after you retire.
Some advisors recommend saving 10-15% of your income as a general rule of thumb. If you save that much from the time you first start working in your 20s until you retire, that may be fine. If you’re starting your retirement savings later in life, however, you will want to save more than that to try to catch up. While there are few hard and fast rules on exactly how much you should save, here are some general guidelines: