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How Much Should You Have in Your 401(k) Before Retirement?

What many people don’t realize is that for many years, retirement was not seen as a time to enjoy life, but rather a time of anticipating its end. Instead of waiting around for death, we now look forward to our mature years, which is undoubtedly a positive shift. With this shift in mindset comes a need for more resources before we can officially say goodbye to our nine to five with confidence. Having multiple sources of retirement income is key if you want to have enough money for more than just the basic necessities.

Pre-retirees will be happy to learn that according to the Employee Benefit Research Institute, as we age, we actually have fewer expenses.1 In their study, they found that from ages 65 to 75, people spent 19 percent less money on household expenses. This number then rose to 34 percent by the time they hit 85-years-old.1 Once you retire, you can expect your overall costs to be down by 20 to 40 percent, which is why numbers vary when determining how much you should have in your 401(k) plan before your exit from the workforce.1

Expand Your Income Streams for Maximum Savings

Instead of overwhelming you with mind-numbing numbers and calculations, let’s explore different scenarios and ways you can make sure you’re well-prepared for your retirement. While contributing to your 401(k) is important, the key is to never put all your eggs into one basket. As long as you’re contributing to your 401(k), IRA or other retirement plans consistently for a number of years and taking advantage of other investment or saving vehicles, you are on the right track for saving for your retirement. 

Not all sources of retirement income are what you might expect. The National Institute of Health conducted a survey and found that about 80 percent of senior citizens owned their own house. Within that group of people, more than half did not have any outstanding debt. The remainder of the individuals were very close to being debt-free.2  This is a great example of not putting all your eggs in one basket. What many people don’t realize is that a home without a mortgage can actually serve as an income source from a reverse mortgage. Not only that, but it also provides you with additional financial security. If you later decide to sell your house, you’ll have some extra money to add to your nest egg.

Take Advantage of All Available Saving Vehicles

Before you spend hours and hours trying to determine how much money you need in your 401(k) before you retire, look at the big picture. From Social Security and pensions to annuities and investments, it’s important to review all potential sources of income before calculating the optimal amount to contribute to your 401(k) plan every month.

When it comes to your 401(k) plan, a good rule of thumb is to contribute at least enough money to take advantage of your company’s maximum matching contribution. According to the IRS, “The maximum matching contribution is always 3% of the employees’ compensation for the entire calendar year. Matching contributions may be made on a per-pay-period basis, or by the due date of the employer’s tax return (including extensions).”3

Other Ways to Get Retirement Ready

In addition to the above tips, there are countless tools online that can help you identify how much money you’ll need to retire comfortably. If you haven’t already, connect with a financial advisor who can educate you on some of the best ways you can save for your retirement. They are a great resource for education if you’re unclear on how to take maximum advantage of your employer’s 401(k) plan.

When it comes to figuring out how much you should have in your 401(k) before you retire, everyone’s number is going to be different. That’s why it’s important to team up with a professional to understand cash flow needs, withdrawal rate and risk. While a 401(k) plan is a good start, explore other ways to save money and accumulate income so you aren’t solely reliant on your contributions during your retirement years. 




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This memorandum expresses the views of the authors as of the date indicated and such views are subject to change without notice.  Samara has no duty or obligation to update the information contained herein.  Further, Samara makes no representation, and it should not be assumed, that past investment performance is an indication of future results.  Moreover, wherever there is the potential for profit there is also the possibility of loss.

This memorandum is being made available for educational purposes only and should not be used for any other purpose.  The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction.  Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources.  Samara Capital (“Samara”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.
This memorandum, including the information contained herein, may not be copied, reproduced, republished, or posted in whole or in part, in any form without the prior written consent of Samara.