How long will my 401k last?

August 5, 2021

RETIREMENT savers putting cash into a 401k will be wondering how long the money will last in their older years.

We explain what you need to know and tools that help you check.

We explain how to know how long your 401k will last


We explain how to know how long your 401k will lastCredit: Getty

What is a 401k?

A 401k allows you to dedicate a percentage of your pre-tax salary to a retirement account.

Employers can also choose to match some or all of the contributions, but this isn't required so it's not guaranteed.

There are two basic types of 401ks - traditional and Roth - with the main difference being how they're taxed.

In a traditional 401k, employee contributions reduce their income taxes for the year they are made, but they'll pay tax when they withdraw cash.

How to boost your retirement savings

DON'T know where to start? Here are some tips on how to get going.

  • Understand where you start: Before you consider your plans for tomorrow, you'll need to understand where you stand today. Look into your current pension savings and research when you’ll be eligible for social security benefits, if at all.
  • Take advantage of a 401k: The 401k plans are tax-effective accounts that put you in a better place financially for your retirement. If you save, your employer may too.
  • Take advantage of online planning tools: Financial provider Western & Southern Financial Group and comparison site Bankrate have tools that give you an idea of what your retirement income will be based on how much you're saving.
  • Find out if your workplace offers advice: Some employers offer sessions with financial advisers to help you plan for your future retirement.

With a Roth, employees make contributions with post-tax income but can make withdrawals tax-free.

Most employees can currently put in $19,500 a year of their own money in a 401k account, excluding employer contributions.

However, workers who are older than 50-years-old are eligible for an extra catch-up contribution of $6,500 in 2020 and 2021.

Factors that affect 401k savings

How long your 401k will last naturally depends on how much you've saved and any investment returns.

It'll also vary depending on your monthly spending, other sources of income, the rate of return on your outstanding balance and tax rates.

Depending on the impact of inflation, you may also feel that the value of your money drops, meaning you'll need more to pay for the same thing.

Fidelity recommends savers not to withdraw more than 4%-5% each year from their retirement savings.

Based on that recommendation, you can calculate how much you'll need depending on what you spend each month.

How long your 401k will last

To check how long your savings will last, you can either calculate it based on the factors above.

It can seem complicated though, so plenty of investment and retirement firms as well as comparison sites have their own free calculators online.

These include The Investors Bank, Fidelity and Bankrate.

If you use one of them, make sure to double-check the assumptions and keep in mind that investment returns are never guaranteed.

According to The Investors Bank, which has 150 branches across the US, a $500,000 retirement income would last for 10 years and eight months.

This assumes that you make monthly withdrawals of $4,000, which is the average spend for retirees, according to the Bureau of Labor Statistics.

It also assumes a 5% rate of return, a 2% inflation rate and a tax rate of 25%.

In comparison, if you had just $100,000, this would last for one year and 10 months with the same assumptions.

Alternatively, if you had a sweet $1million sum, this would last for 26 years and seven months.

It means that if you retired at the age of 66, you'd have enough money until you reach 92 and seven months.

Of course, your 401k isn't always your sole income in retirement - and plenty of pensioners rely on social security benefits.

Pension savers could get up to $1,000 in extra cash a year thanks to a new proposal in the Senate.

We explain how much you and your employer can contribute and withdraw from a 401k.

Plus, check out these 20 ways to live comfortably off your social security checks.

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