According to a recent survey from Charles Schwab, which looked at 1,000 401(k) plan participants nationwide, they found that on average, Americans believe that they need $1.7 million to retire as of 2019, which will continue to grow.
What is the 401(k) Plan? A 401(k) plan is a qualified employee sponsored retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax-deferred basis. While the investments grow in the employee’s traditional 401k account, they do not pay any taxes on it until it is time to withdraw the funds. A roth 401(k) Plan allows you to grow your money on a tax free basis.
More than half of those polled are contributing 10% or less of their salary to 401 (k) plans; their largest source of retirement savings.
Although it is considered to be a good start, it is felt that it may not be sufficient for most savers, especially if they start saving late in life.
However, it is difficult to generalize a true retirement number as it will be different for everyone. Some of the factors that will impact your retirement number will depend on various factors such as where you will live after retirement, your health status at that age, etc.
Given below are some questions that you can ask yourself to determine your optimal retirement amount.
What will be your living cost? Try to estimate your expenses after you retire. While doing so, you should take into consideration additional expenses like medical, travel, etc. A much-touted thumb rule is that you need 70 to 80 percent of your pre-retirement income after you finish working.
Will the amount you save for retirement last your lifetime? Many people do not take longevity into consideration when they set their goals for saving. People are living much longer than before. Hence, one should definitely consider it when thinking of building a retirement plan.
Will your retirement funds generate enough cash? There is no way of knowing what will happen to inflation. Therefore building a big retirement fund is imperative. But more important is to re-invest these funds so that it generates regular income.
According to a study conducted by the Employee Benefit Research Institute, two-thirds of the U.S. workers felt that they are confident of living comfortably after their retirement. But the study found that only 42% have done any retirement calculations.
Savers have come a long way since the Pension Protection Act of 2006, which made it easier for companies to automatically enroll their employees in the 401(k) plans. Congress could soon pass the first major retirement reform since 2006, which is aimed at further expanding access to retirement savings for workers.
The legislation cleared the House of Representatives in May and awaits action in the Senate.
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