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Benjamin CurryEditor
Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
Benjamin Curry
Benjamin CurryEditor
Ben is the Retirement and Investing Editor for Forbes Advisor. With two decades of business and finance journalism experience, Ben has covered breaking market news, written on equity markets for Investopedia, and edited personal finance content for Bankrate and LendingTree.
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Rae Hartley Beckeditor
Rae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 100 bylines in prominent publications including Money, Bankrate and Investopedia on all things personal finance. A former award-winning claims specialist with the Social Security Administration, Rae continues to share her expert insider knowledge with Forbes Advisor Readers.
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Rae Hartley Beck
Rae Hartley Beckeditor
Rae Hartley Beck first started writing about personal finance in 2011 with a regular column in her college newspaper as a staff writer. Since then she has become a leader in the Financial Independence, Retire Early (FIRE) movement and has over 100 bylines in prominent publications including Money, Bankrate and Investopedia on all things personal finance. A former award-winning claims specialist with the Social Security Administration, Rae continues to share her expert insider knowledge with Forbes Advisor Readers.
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Updated: May 5, 2023, 9:18am
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
Contributing to a 401(k) is one of the best ways to prepare for retirement. Forbes Advisor’s 401(k) calculator can help you understand how much you can save, factoring in your expected age of retirement, total contributions, employer’s matching contributions and rate of return.
401(k) Calculator: Our Assumptions
To get the most out of this 401(k) calculator, we recommend that you input data that reflects your retirement goals and current financial situation. If you don’t have data ready to go, we offer default numbers based on the finances of the average American.
- Contribution percentage: 10%. Retirement experts suggest that you contribute at least 10% of your salary to your 401(k) account, but even this may not be enough for a secure retirement. Fidelity Investments recommends that you should be saving at least 15% of your pre-tax salary for retirement.
- Employer Match: 5%. Many employers choose to match you 401(k) contributions up to certain limits. That means your employer also contributes money to your 401(k) account as a job benefit. According to Fidelity, the average employer match is 4.6%. They may get to that percentage using a dollar-for-dollar contribution or a custom formula that might, for example, match 50% of your contribution amount up to 6% of your total annual salary.
- Annual Salary (pre-tax): $31,000. While your annual salary may be higher or lower, $31,000 is the median income in the U.S. This is a critical piece of information for your 401(k) plan because it’s a benchmark for determining how much you can afford to contribute.
- Annual Salary Increase: 3%. The Social Security Administration estimates that average incomes have risen by this amount each year over the past decade. Your salary may increase more or less than this average, but it’s generally safe to assume your income will keep up with inflation, which historically has grown at a rate of about 2% per year.
- Retirement Age: 66. According to research from Transamerica, this is the median age at which Americans retire.
- Current 401(k) Balance: $0. Hopefully you have more than this saved for retirement already, but for the purposes of this calculator, we set our default to represent someone starting from scratch.
- Annual Rate of Return: 9%. The securities you choose to buy with your retirement savings determine the rate of return on your investments, not to mention the overall performance of the stock market. We’ve assumed that your investments will return an average 9% before you retire, reflecting historical long-term averages of stock portfolios.
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Key Retirement Terms
- 401(k). Companies offer this popular option to help employees save for retirement, with contributions deducted from each paycheck. 401(k) plans let you invest in mutual funds and index funds, growing your savings over time. If you work for a non-profit or government organization, you may have a 403(b) or 457(b) instead, which work similarly to 401(k)s and provide nearly identical benefits.
- Contribution limits. You can contribute up to $20,500 to your 401(k) account in 2023, or $27,000 if you’re 50 or older. If you’d like to save even more for retirement, consider opening an individual retirement account (IRA), which gives you another $6,000 in tax-advantaged contributions, or $7,000 if you’re 50 or older.
- Tax-advantaged retirement accounts. Retirement plans like your workplace 401(k) are tax-advantaged accounts, meaning your contributions earn special tax treatment. By allowing you to defer (or avoid entirely) paying taxes on your investments, these accounts, like traditional and Roth 401(k)s, help you grow your balance faster than if you invested with a taxable investment account.
- Compound returns. Reinvesting your returns allows you to earn even greater future returns with compounding. Here’s how it works: If you invest $1,000 and earn a 10% annual return, your balance grows by $100 to $1,100 after the first year. In the second year, assuming the same rate of return, your balance is $1,210, a $110 gain. Over long periods of time, compound growth can exponentially grow your retirement nest egg.
- Retirement age. You may retire whenever you wish, so long as you have enough money set aside. But for the federal government, 62 is the official age when you can claim Social Security benefits. It’s also worth noting that 59 ½ is the age at which you can start making withdrawals from your 401(k) plan free of any IRS penalties.
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401(k) FAQs
How much do I need to save in my 401(k) to retire?
The amount of money you need to save in a 401(k) to retire depends on what sort of lifestyle you’d like to have in retirement.
Will you own a smaller home? Would you like to travel? How much do you have set aside for medical expenses? There are countless factors that go into setting up your retirement paycheck, which can make planning a big challenge when you’re decades away from retirement.
Instead of worrying about saving a fixed amount, most financial advisors recommend that you have enough saved to cover 60% to 80% of your pre-retirement income. Experts suggest this amount should let you maintain your current lifestyle in retirement.
For more guidance on how much you should have in your 401(k), check out Forbes Advisor’s guide on how much to save for retirement.
Should I save for retirement beyond my 401(k)?
Your 401(k) account is not the only option you have when it comes to saving for retirement, and if it charges high fees or has limited investment options, it may not be the best choice for you.
Check out our guide to the best retirement accounts to determine which is right for you. But first, make sure you’re contributing enough to your 401(k) to get the maximum matching contribution from your employer; only then should you consider saving more money in an IRA or a taxable investment account.
For more insight, see our guide on how to save for retirement.
How should I invest for retirement in a 401(k)?
When selecting the right investments for your retirement portfolio, let your age guide your choices.
Younger investors should opt for more aggressive stock investments that may see higher returns—and potentially bigger dips in market downturns. But those dips are OK because you’ll have years or decades to recover and actually benefit from short-term tumbles in prices. As you age, though, experts recommend you gradually shift your asset allocation to conservative, bond-based funds to keep your portfolio stable as you near the age you’ll start to need it.
In addition to age, your own personal risk tolerance should guide your retirement investing choices. You can manage your retirement investments with a simple three-fund portfolio. But if you’d prefer a professional touch, reach out to a financial advisor, choose a target-date fund or opt for a robo-advisor.
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The article you provided delves into retirement planning, focusing on the significance of 401(k) contributions, considerations for retirement age, investment strategies within retirement accounts, and the importance of seeking financial advice. As an enthusiast well-versed in finance and retirement planning, let's break down the key concepts covered in the article:
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401(k) Retirement Plans: These are employer-sponsored retirement savings plans allowing individuals to contribute a portion of their salary into investment accounts. Contributions are often tax-deferred, and some employers match a percentage of these contributions.
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Contribution Limits: The maximum amount you can contribute to a 401(k) in a given year. For 2023, the limit is $20,500, or $27,000 for individuals aged 50 or older.
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Tax-Advantaged Retirement Accounts: These accounts, like traditional and Roth 401(k)s, offer tax benefits on contributions or withdrawals, aiding in faster growth of retirement savings.
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Compound Returns: Reinvesting returns from investments to generate additional earnings on both the initial investment and the accumulated returns over time. Compound growth plays a crucial role in increasing retirement savings.
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Retirement Age and Withdrawals: The article mentions the official retirement age for Social Security benefits (62 years old) and the age (59 ½) at which individuals can start withdrawing from a 401(k) without IRS penalties.
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Investment Strategies: Suggestions are provided regarding the allocation of investments based on age, risk tolerance, and long-term goals. For instance, younger individuals might consider more aggressive stock investments while gradually transitioning to more conservative options as retirement approaches.
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Financial Advisor Consultation: Guidance is offered on seeking professional advice, especially if unsure about investment choices or retirement planning strategies.
The piece emphasizes the need for personalized retirement planning, considering factors such as lifestyle preferences, healthcare costs, and desired income post-retirement. It also touches upon the importance of maximizing employer matches in 401(k) plans and exploring additional retirement savings options like IRAs or taxable investment accounts.
Understanding these concepts is vital for effective retirement planning, ensuring individuals make informed decisions about their financial future.
