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How Much Money Should You Have in Your 401(k) When You Retire?

Ubiquity Retirement + Savings has been an affordable provider of 401(k) plans, designed for small businesses, start-ups, and solopreneurs since 1999.

  • Streamlined, flat-fee plans starting at $75/month
  • Easy online set-up and management
  • Flexible investment options
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How much you need in your 401(k) at retirement depends on a myriad of factors, including the age you want to stop working, the lifestyle you want to live, how well the economy has performed, and what other sources of income you have, such as Social Security benefits or pension funds. Whatever your retirement savings objectives are, you can reach your goals by following a few financial rules of thumb.

How Does a 401(k) Work?

A 401(k) isn’t a traditional savings account; it’s a long-term investment account that allows your money to grow considerably over many years before you pay taxes on it. In retirement, your tax bracket should be lower, so you’ll pay tax on the money as you withdraw it at a reduced rate.

Basic Rules of Thumb for Retirement Planning

  • Setting aside even relatively small amounts today will build your wealth over time.
  • As you add to your savings, compounded interest will help your account grow exponentially as the interest earns interest.
  • The earlier you begin saving in a 401(k), the greater your earning potential is.
  • If your employer offers matching contributions, you should save enough to maximize this free money.
  • Increase your contributions as you earn more.
  • Once you reach 50, you can set aside an additional $6,500 per year as “catchup contributions.”
  • 401(k) stock returns range from 5 to 8 percent annually, with 7% considered the “average” rate of return.
  • Less risky short-term funds and bonds return 1-2%; risky venture capital and real estate can return 25%+.
  • When choosing investments, a diverse portfolio with a mix of funds is widely considered the best bet.
  • Don’t forget about Social Security. The government will send you a check every month in retirement.

Individualized Considerations to Help You Decide How Much To Have in a 401(k)

You may need more or less money in your retirement years depending on a number of factors:

  • Retirement location

    What will your cost of living be like? You’ll need more money if you’re retiring in New York City, Los Angeles, or Oahu than you would if you’re retiring in El Paso, Louisville, or Memphis. Some states like Wyoming, Florida, and Nevada don’t even charge income tax!

  • Lifestyle

    How “large” do you want to live? If you have expensive hobbies like antique car restoration or boating, extensive travel plans, or adult children and grandchildren you’d like to spoil, you may need more. Good news, though – the Employee Benefit Research Institute says household expenses drop 19% by age 75 and 34% by 85. People over age 50 tend to spend 40-45% of their budget on home-related expenses, so expenses are generally down 20-40% by retirement age. Owning your own home and paying off your debts could free up considerable money in your golden years.

  • Retirement Age

    When will you stop working? This is a big decision that greatly affects how much savings you’ll need. If you love your job, enjoy the social aspects, and derive part of your identity from working, you may want to stay put. One-fifth of Americans are working well past 65 these days. On the other hand, one-quarter of Americans retire early, usually around age 55. If you wanted to quit work at 55 and replace 75% of your income, you’d need to have 18 times your annual income already saved.

  • Lifespan

    One of the #1 retirement planning mistakes is failing to account for a potentially long lifespan. Modern medicine has stretched the average lifespan: for men, it’s 76, and for women, it’s 81. Consider your family history as well; if you have a lot of relatives living well into their eighties and nineties, it’s prudent to save more. You will at least receive Social Security throughout retirement, so be sure to visit SocialSecurity.gov to see how much monthly income you can expect. Then determine how much more you’ll need on top of that. However, keep in mind that government funds are subject to change. Currently, the checks are expected to continue being paid in full through 2037. At that point, the government can increase taxes, reduce benefits, or bump up the age to collect full retirement benefits.

  • Health

    It’s important to consider your quality of life in retirement. Will you be fortunate and healthy, or will you have added medical bills? Will you be forced to retire early? There is no way to know for sure, but financial strain is the last thing you want to worry about on top of health concerns. In order to be prepared, you’ll need to consider your current health, supplemental Medicare policies, your income, and where you live.

Saving for Retirement With a 401(k)

Contributing as much as you can to a 401(k) will give you great peace of mind as you work toward a healthy financial future. In 2020, you can contribute up to $19,500 if you’re under 50 and $26,000 if you’re over 50. Your company’s matching contribution is provided as an additional benefit of employment, so it’s important to take advantage of this earned bonus money.

You may contact Ubiquity if you have any other questions about retirement planning with a 401(k) plan. We have an abundance of 401(k) resources and a 401(k) calculator to assist in your preparation as well.

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44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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© 2020 Ubiquity Retirement + Savings
Privacy Policy
44 Montgomery Street, Suite 3060
San Francisco, CA 94104
Support: 855.401.4357

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