How much is optimal to have in 401K when retiring?

[dvcgirl]

what happens to all those that just can't save that much - just financially do not make that much to save????

This entire thread is a bit scary -

how much do you actually save per month? What about those on a middle income family how much can you spare to save??????

lisa

Well, currently a huge portion of Americans aren't saving enough. Not nearly enough. There's simply no other way to look at it. The average 401K balances for all age ranges is very low, and those are averages. The median is even lower....I think as low as $17,000....meaning a small percentage have very high 401K balances pulling that average way up.

I was flipping through a book recently called "Retire on Less than you Think" that paints that 70-80% figure as a big conspiracy by the financial sector in order to get you to invest money with them. The author claimed that people can retire on far less than that number. I was intrigued. The author really focused a lot on how many who haven't saved enough won't need that much as their expenses would drop dramatically.

But as I read on he called for some pretty drastic changes for some of his retirees to get those expenses way down, like selling the home and moving to a cheaper area. And his examples were extreme. His one couple owned a home in a NYC suburb. He proposed that they sell their house (a mini-gold mine) and move to Tuscon AZ where their expenses would be cut dramtically. Not everyone will want to move 2 or 3 thousand miles in order to be able to retire. And not everyone has hundreds of thousands in equity sitting in their home. In fact, more 60 year olds than ever are currently carrying a mortgage.

The answer is to educate yourself and start doing some planning. Many people are astounded when they first see "the number" that they'll need. But IMO, that number is likely to be the real deal. Especially when you factor in inflation.

It's a very rare thing to be able to retire early (before 65) with just a 401K and additional savings and no pension. Makes all of those government workers with solid pensions look pretty smart. We have been fortunate and will have the ability to retire in our early 50s. However, we have no children, which greatly lowers our expenses. And we've had a few significant financial windfalls in the last ten years that moved our timeline up. We still save as much as we can, follow a budget we design once a year and keep definite limits on our spending.

 

[Nebraska_Disney]

My wife and I are a dual income family and we live off about 1 income and 1/2 of the other. The other half goes into savings. We save about 25-30 cents of every dollar we earn right now (with matches included) and we are in our early 40's. SS will be a bonus and we plan on being done working by 60 at the latest. Currently have $800K in savings with kids in their teens. The secret? Pay yourself first ! There is always money going to savings every month. Always. We live comfortably and we don't do without, but we also understand that a dollar saved today will compound to many more by retirement. Even if you feel you are only saving a little, save it. It will grow. We also live by a budget and have a 6-8 month safety net in cash in the bank. Our income is in the $130-140K range, depending on the year and we can easily live off less than $100K of that while saving the rest. Living off $80K in retirement will be a breeze !

 

[supersnoop]

Welcome to 2006.

 

[gottalovepluto]

We need a Zombie Thread emoji something awful!

 

[georgina]

Argh! The subject caught my eye, didn't notice the year

 

[ICF]

These 401Ks have had a wild ride since 2006....but should have seen some great returns over the last few years.

 

[AlohaNow]

Hey, it may be 12 years later, but the basics of this thread are still the same! I promised DH $1 million and we are still on track for that amount in retirement!

 

[DLgal]

I think the advice to have enough to be able to have 75-80% of your pre retirement income is ridiculous. My dad, pre retirement, made $15000 per month. My parents retired almost three years ago and are doing quite well on their $4000/month fixed income (most of which is social security). And they bought a new house upon retirement in a 55+ community.

They haven't even touched the principal on the 401k. It is still making them money and they are withdrawing something like 2% per year.

 

[crisi]

It depends on what percentage of your income you were spending. If you weren't spending what you were making - because you were - oh, say - saving for retirement - you won't need the money you were saving. If you didn't pay off your house until right before retirement, but then paid it off, you don't need the money you were putting towards mortgage. If you just finished paying on the loans you took out for your kids college, you won't need that money in retirement either.

If you were spending every cent pre-retirement, and you don't have any major expenses - like loan payments disappearing - you'll need all of your pre-retirement income.

 

[starry_solo]

It also depends on whether you move to another state or somewhere else with a cheaper cost of living after retirement.

 

[DLgal]

It also depends on whether you move to another state or somewhere else with a cheaper cost of living after retirement.

Yeah, they left CA...

 

[dminnie]

It depends on what percentage of your income you were spending. If you weren't spending what you were making - because you were - oh, say - saving for retirement - you won't need the money you were saving. If you didn't pay off your house until right before retirement, but then paid it off, you don't need the money you were putting towards mortgage. If you just finished paying on the loans you took out for your kids college, you won't need that money in retirement either.

If you were spending every cent pre-retirement, and you don't have any major expenses - like loan payments disappearing - you'll need all of your pre-retirement income.

Sure, there are things you won't have to pay for, but there are also things that could be HIGHER during retirement. If you want to travel more to see the world or visit your children/grandchildren, it's going to cost more than when you were working. A BIG unknown...what will your healthcare costs be...probably higher the older you get. Just the increased healthcare costs can more than make up for the mortgage being paid off, kids done with college, etc.

 

[suebeelin]

I think everyone is underestimating how much they need to retire, including my DH. You'll need upwards of $2m+ in assets/savings to retire, IMO... not that we are on track for that given my family's spending habits and the uncertainty of the future.

 

[dclpluto]

It all depends on how much you want to enjoy your senior years. I would like to e joy my senior years so I put in 16 percent of my pay. I know what my pension is going to be very little since it’s frozen than my social security. For me I think a million in my 401k would be good to enjoy my senior years. About 2/3 there I’m 48 may never get to a million but I’m going to try.

 

[TwoMisfits]

I know this is a really old thread, but how much in your 401K depends on...
1. Are you getting a pension? That will make an enormous difference in "how much you need?"
2. What you plan to do?
3. How much do you plan to spend to prolong life? Healthcare costs, even with Medicare, will spiral up as you get older, and deciding if you will do everything you can to stay on this Earth or if you will seek palliative only care at a certain age point will matter...
4. How much do you plan to aid family?
5. And do you plan to stay where you are or go elsewhere? Will that be a higher or lower cost area for you?
6. How much do you want to worry about markets, SS increases, Medicare co-pay increases, inflation, etc...the more you have and don't draw from, the less you'll have to worry about any of these affecting you...

Too much is probably never enough in this area...so you do your best and just save, save, save...

 

[crisi]

Sure, there are things you won't have to pay for, but there are also things that could be HIGHER during retirement. If you want to travel more to see the world or visit your children/grandchildren, it's going to cost more than when you were working. A BIG unknown...what will your healthcare costs be...probably higher the older you get. Just the increased healthcare costs can more than make up for the mortgage being paid off, kids done with college, etc.

And that is part of the issue with rule of thumbs. There is how much you need - and you need to be able to cover your housing, food, medical expenses. And there are the things that you want to make retirement comfortable. If that is a lot of travel, you'll need a lot more than you had when you didn't have time to travel. If you want to play a lot of golf, that's going to add to the expenses.

I've been semi-retired for three years now - and I turn out to be a cheap retiree - in part because my husband is still working and I still have kids at home. In part because I enjoy being somewhat of a shut in. But it would be really easy to turn time into ways to spend money.

 

[bdcp]

It really depends on your current income, age at retirement and lifestyle. DH and I already have more than has been mentioned here. Currently we have between 1.5 and 2 million in 401K's, plus I have a pension (Fed gov FERS so not anywhere near half of my current income) and DH is a retired Navy Reservist Captain with 30 years and we're already drawing that, but we don't use that for living expenses so we don't get used to having it as extra. We both will receive SS (unless they go to a means test, which IMO is stupid since we paid into it for 40+ years) although a portion of mine is part of my FERS retirement. But, if we did lose SS, we'd still have plenty to live on. We could only stay in our current home if we quit cruising twice per year but this house was our 20 year home and we've been here 14+ years already. Our CFP recommends planning on 4% withdrawal rate, but also says it could be as high as 5 depending on growth. Our goal is not not touch the principle for a long time. I'm retiring in 2 years at age 60 and DH plans to in 4.5 years at age 65 and we will reach our savings goal by then. Our sons (32 and 34) are contributing as much as they can to their 401K's because they won't have any pensions and they have ever since they started working a job that had benefits.

 

[crisi]

I think everyone is underestimating how much they need to retire, including my DH. You'll need upwards of $2m+ in assets/savings to retire, IMO... not that we are on track for that given my family's spending habits and the uncertainty of the future.

The first million is the hardest. After that it just keeps multiplying - if you have time on your side. Which is sort of the problem - you are trying to get that first million when you have a ton of other monetary priorities - and by the time you can save it, you've run out of time for the growth.

But yeah, it seems like I've told people quite often (I'm an accountant and a lot of my friends look to me for financial advice) that a million dollars is not THAT much money when you are looking at retirement. Its probably about $40k a year in todays dollars - and $40k will not be worth what it is today when you retire.

 

[tvguy]

Hey, it may be 12 years later, but the basics of this thread are still the same! I promised DH $1 million and we are still on track for that amount in retirement!

Aren't that many new topics, so never matters to me if it is a Zombie thread, or a new thread since the topic isn't new.

As to the post, in sitting down with a Financial Planner, my CPA and my Broker, they all use different computer software but all three pieces of software ask how much you want to leave your heirs, and in all three cases the default number in the software is $1 million. That's what would left AFTER you die. Although, given the real estate market, the $101,000 tract house DW and I bought 35 years ago may be worth that alone when we cross the rainbow bridge.

 

[DLgal]

Aren't that many new topics, so never matters to me if it is a Zombie thread, or a new thread since the topic isn't new.

As to the post, in sitting down with a Financial Planner, my CPA and my Broker, they all use different computer software but all three pieces of software ask how much you want to leave your heirs, and in all three cases the default number in the software is $1 million. That's what would left AFTER you die. Although, given the real estate market, the $101,000 tract house DW and I bought 35 years ago may be worth that alone when we cross the rainbow bridge.

See, and I think that is ridiculous. Why do you need to leave your heirs anything at all? I consider that a bonus. You should be saving to finance your own retirement without becoming a financial burden to anyone else, but saving so that your kids can be millionaires when you die is stupid, IMO.

My mother in law worked as a teacher her whole life and recently retired. Her assets are well under $500k. She is living on something like $3500/month guaranteed fixed income. She luckily has VERY low cost healthcare for life. Her home isn't worth much and she still has 5 more years before it is paid off.

When she retired, she actually almost purchased a life insurance that would have cost her an arm and a leg because some shady financial advisor made her feel like she HAD to leave her 3 kids an inheritance. I laughed and told her she would be crazy to do that and I said to her "You don't need to leave your kids a penny. Worry about yourself and make sure you use your money wisely."