Simply Money

Simply Money

Each weeknight at 6pm, Simply Money makes money simple for you. Join hosts Amy Wagner and Steve Sprovach as they share easy-to-understand and...Full Bio

 

Your 401(k) isn’t telling you the whole story

QuestionT.R. from Kenton County: How much do I need in my 401(k) to retire? I’m close to $500,000, but not sure if that’s enough since that’s the only retirement account I have.

A: Congratulations on a job well done! However, we’re going to throw a little cold water on the celebration. Because all that money in your traditional 401(k) isn’t actually all yours.

While your account balance might say something close to $500,000, the entire amount has been tax-deferred; that is, you agreed to let the government give you an up-front tax break on contributions as long as you pay taxes on withdrawals later on down the line. So, for example, if you’re in the 12% tax bracket in retirement (assuming current tax brackets stay the same for a while), only about $440,000 is yours. In the 22% bracket? Only $390,000. Paints a slightly different picture, doesn’t it?

With that said, those amounts might be enough for you to retire. Because now the question becomes, can you live off 3 or 4% of that amount every year? In all honesty, some people need millions to retire; others only need a few hundred thousand. The amount you need to retire the way you want depends on numerous factors including your lifestyle, budget, other sources of income (such as Social Security, pension, other investments, etc.), your health, and the number of years in retirement, just to name a few.

Here's the imply Money Point: As you approach retirement, consider working with a fiduciary financial advisor. He or she can take a look at your entire financial picture to help you figure out if you’re financially on track to retire well.


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