Nothing is more confusing and stressful than figuring out how much you will need to live comfortably in retirement. The big question is: What should you amass during your working years to fund a life of leisure during your retirement years?
The answer to this question varies from person to person and depends on a number of factors, even if the method of saving is often similar. As company pensions have become more and more a thing of the past, company-sponsored 401(k)s have risen as the alternative of choice to help workers save for their golden years.
According to the Bureau of Labor Statistics, 65% of private industry workers had access to a defined contribution retirement plan, or 401(k), in 2021. Though widely available, workers still have questions about how to reap the maximum benefit from their 401(k).
24/7 Wall St. created a list of considerations to factor into the decision of how big your 401(k) should be before retirement. This list is based on a report produced by financial technology company SmartAsset, entitled How Much Do You Need in Your 401(k) to Retire?
One consideration in how big your 401(k) should be is when you plan to retire and how much you will need for a comfortable lifestyle. Another important consideration is where you will live. Each state has different tax structures, so you will require more to live in a high tax state like California. Cost of living also varies widely among states. You can move to the best US city for retirees.
Although 401(k)s are a great savings vehicle, your contributions are limited. If you are under 50, you can contribute a maximum of $20,500 in 2022. Over 50, you can make a $6,500 catch-up contribution.
Your employer may also add to your plan with a matching contribution. The total allowed for an employee-employer pay-in is $61,000 per year for those under-50. If you are over 50 and add in the catch-up contribution, the limit is $67,500. Yet whatever you contribute will be worth it when you can relax and live a retirement free of financial worries. (When in retirement, these are the 8 best investments for retirees.)
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