How Much Retirement Income May My 401(k) Provide?

It may surprise you how significant your retirement accumulation may become simply by saving a small percentage of your salary each month in your 401(k) plan. Further, it may be useful to estimate your future monthly income generated by these savings and what that means in today’s dollars.

 

 

Many employees focus on putting away money for retirement and on building their 401(k). While this is a smart idea, keep in mind your retirement savings will need to be translated into income down the line. It’s important to understand how much your retirement savings will give as an income after you retire.

There are a few questions you will want to ask yourself to decide what your after-work golden years will look like:

  • How much time do I have until retirement? The earlier you are in your working career, the more time you have to grow your account, and the more risk you can absorb. It can also be more challenging to say how much you will need since your lifestyle will likely change, as will inflation.
  • How long will my retirement savings last? Consider your health and your life expectancy. A $900,000 savings can stretch out much further if you expect to only need it to last ten years than if you expect it to last 30. When trying to decide how much your savings will need to cover, try to overestimate your lifespan rather than underestimate it. You do not want to run out of income at retirement.
  • What is my current lifestyle like, and what do I expect to change after retirement? Consider where your money goes now and what kinds of expenses you expect in retirement. Will you spend more on health care, or will you want to travel? Will you no longer be paying down your home or paying for continuing education? As best as you can, determine how much you will need so you can compare it to how much you will earn.
  • What can I do to understand how to determine when I can retire? You may have a specific date based on your employment contract, or you may be in an industry where retirement is expected by a specific age. Consider when you might want to retire, but keep in mind you may need to retire early if your health or other life events impact your ability to work.
  • How is my retirement savings growing? If you have employer match or other savings, this can impact your retirement. Estimate how much you will have in retirement savings by the end of your working life.

Once you determine the amount of savings you need in your 401(k), you will need to convert that into usable income. Your plan may have an annuity, or you may need to find investments that give you a yearly or monthly income. How much you save and how much you need later can help you determine which investment or income vehicle is right for you.

Use the free and unbiased calculators at Money Help Center to determine how much you need to set aside for retirement and how to choose the right investments for you. Our calculators can help you get control over your retirement years.