Planning for the future isn’t easy. 401ks is one of the most straightforward tools created to help an average worker like you or me to save for retirement. However, here is the most common issue: “Why should I starve right now to save for something that I don’t even know if I can make it that far?” There is nothing wrong with living for the present, but tomorrow won’t be the same if you are not smart about your finance. Today I will share some data with you regarding 401ks.
Related: What Is 401k?
How much an average worker has saved?
A new report from Vanguard found that the average 401(k) participant has around $92,000 saved up in a retirement account. To put this number in perspective, age, and lifestyle play a factor as well. Thirty years old with around 90ks in your 401ks is much better off versus a 60 years old with 120ks in their 401ks. Besides, if your average monthly spending is $1,500 and let’s say you want to maintain the same lifestyle in retirement as you are now, $92,000 can only last roughly six years ($92,000/($1,500 x 12)).
The table on the right breaks down the 401ks retirement funds into different sections: Income, Age, Gender. While the average 401k saving was at $21,970 at 25-45 age range, I was able to contribute $130,000 towards my retirement account using a straightforward method:
“MAX OUT MY 401KS”
Related: WHY I MAX OUT MY 401Ks: $120,000 IN 4 YEARS.
How much do you need to have a comfortable retirement?
The easiest way to know is by using the Retirement Calculator. There are different types of calculators out there:
Essentially you get the ball park of how much you need to save per month to get to where you want to be. You don’t have to be a genius to figure out the simple trick:
“Save More and Save Frequent”
Make sure to look closely at how the calculator comes up with your results. For example, NerdWallet calculator use
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A 3% inflation rate: Can’t avoid it. You can find the US Inflation Rate by Year from 1929 to 2020 here.
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Salary increases of 2% per year: I have a hard time following this rule. Over the past 3 years as a clinical pharmacist, my salary at my full time job has stayed the same. Yes I made more money by pickup more shift, but my spending also increase.
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A 5% rate of return in retirement (assuming a more conservative portfolio). This is a very generous return rate.
Is 1 million enough for retirement?
A million dollars has long been considered a secured fund to have a comfortable retirement. I think not. Using a 4% withdraw rate, a 67 years old with 1 million retirement account can generate $40,000 only in the first year. It will go down hill from that.
If I keep working as hard as I can until I am 65 and able to put away 31% towards my saving, I will end up with 8.57 M.
The bottom line is that our generation needs to do a better job at planning for the future. No one can build a foundation for yourself but you. I am a firm believer of 401ks, and I will contribute to contribute the max.
Related: Using“4 Percent” and “25x” Rule to Calculate Saving For Retirement.
Thank you Yahoo Business for the inspiration
