Be Ready for the Unexpected

How Much Do You Need to Retire?

Experts say you will need about 70% of your pre-retirement income when you retire, or if you are a lower earner you will need 90%. If you are a younger person you are probably aware that you may not be able to count of Social Security at least at the present percentages. In 2009, 13% of workers did not opt to join their employer’s retirement plan, such as a 401K. The average American spends 20 years in retirement, so it is important to start thinking of retirement savings at a very early age.

Your Nest Egg

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source flickr

401K Plan

The 401K is the most common plan that employers offer to their employee to build a retirement fund. When should you start saving in a 401K plan? Today! The younger you are when you start saving obviously you will have more money when you reach retirement age. Fewer than half of Americans have calculated how much they need for retirement

401K Money Pot

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source associatecontent

Retirement Needs

I’m sure you want to know how much money you will need for retirement. There are calculators all over the Internet they will give you that amount, assuming you deposits remain constant and the dividends you earn also stay roughly the same over the years. Sitting down with a financial planner can also be very helpful.

Sit down and write out what you assume you financial needs will be at retirement age. Will all your debts be paid off? Will you home be paid for? Do you have some rental income that you can count on? Do you have some stock or maybe a hefty inheritance that you can count on? If you or your spouse is in poor health, then you will likely have medical bills that are above average. Take all these things into account along with the current income you receive and try to come up with a percentage of that income to meet your needs at retirement time.

You should make plans and save continually, because you can't know what the future holds. My husband went to work one day at age 58, had a stroke that night and has never been able to work since that time. This certainly wasn't in our financial plans or life plans. We did without any income for six months and still had to pay cobra insurance for him for almost two years. The fortunate part for us was we had contributed to 401k's, and we also had refinanced our house a couple of years earlier into a 10 years mortgage. We were able to take money out of our 401K to pay off our home or we would have lost it. Fortunately we had no credit card debt. This brought us much comfort at a very difficult time. I was already on disability from lupus, so the retirement income saved us.


CNN Money Graph

How Much to Save in 401K

How do you know how much to save? There are limits on the maximum amount imposed by the government because every dime you put into your 401K plan is pre-taxed money. This benefits you in a couple of ways; since these deductions are pre-taxed you will pay less income tax each year you contribute and you will be building a retirement plan that will accrue dividends or interest. If you instance, your employer will match a deposit of 6%, then you certainly want to put 6% into the 401K. Always exploit the full amount the employer offers. The second component in deciding how much to contribute is to allocate the percentage which is half your age. For instance, if you are 30 years old, put 15% total into your retirement, 40 years old means saving 20% and so forth.

Some firms allow automatic enrollment for their 401K plan and you want to latch onto this plan as you start saving automatically while working. With this case you are put by default into the plan and the contribution rate is determined by the sponsor. If your pay increases, then your contribution rate increases. Remember however, that this still might not give you enough money to retire.

A further aspect of deciding the amount to save is to evaluate your age, health, dependents, other income sources, family commitments and so forth before deciding the exact amount of your deposits. It shouldn’t be so high that you can’t live your life comfortably now.

How Much Can I Save

Another major factor that may contribute to your decision is the IRS sets a maximum limit an individual may contribute to their 401K plan each year, plus the amount typically changes each year. The contribution limit is the same even if you have other sources of income. T

The maximum rate for 2010, is actually the same as 2009, which is $16,500. There is still the catch up for those over 50 years of $5,500 in addition to the standard. The maximum did increase from 2008 when it was $15,500 to the present $16,500. It has never stayed the same 3 years in a row. As you probably know you cannot withdraw money from your 401K without paying full taxes and a 10% penalty before you are 59 1/2 years old.

Another bit of advice is, if you have old 401K’s sitting around from previous jobs you are losing money due to fees, so you want to combine all of them into a tradition IRA which is still untaxed money, or if you want to set up a Roth IRA you could pay the taxes then you can remove the money earlier if needed. This year for the first time you will soon be able to convert Traditional IRA or other tax deferred retirement plan to a tax-free Roth IRA

Better Saving for Retirement

Ultimate Monetary Goal

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source sound401K

Summary

Americans used to count on pensions but most private companies do not offer them anymore. Of course, if you listen to the news you know government jobs do not pay into Social Security, and they do receive pensions, very lucrative ones in some cases. As you reach retirement age Social Security will be part of your income, but the primary amount will probably come from your investments in programs like the 401K. Starting to save young will certainly make your retirement years more comfortable and the security you have is worth the years of savings in your 401K.

© 2011 Pamela Oglesby

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Comments 18 comments

FitnezzJim profile image

FitnezzJim 5 years ago from Fredericksburg, Virginia

Good advice, build your retirement savings starting as ealry as possible, and don't count on the government to be there at retirement time for support.

Also, not sure, but I think government jobs pay into Social Security too. But perhaps that's just one more reason not to trust what you hear on the news.


Darlene Sabella profile image

Darlene Sabella 5 years ago from Hello, my name is Toast and Jam, I live in the forest with my dog named Sam ...

Hello my dear Pam, YUP this is the way, however I must say that when I got sick at work I had to use my 401 to survive until my benefits clicked in. Then just recently both my children, mid 40 lost their jobs a few years ago and had to pull it to live on. It darn tuff out their. Thank you as I am going to email this to both the kids. Rate way up up great job. Love & peace darski ANOTHER CONTRAGS ON TWO WINS I AM PROUD OF Y0U GIRLFRIEND...LOVE YOU TONS


Pamela99 profile image

Pamela99 5 years ago from United States Author

Jim, I appreciate your comments. My brother is a retired air traffic controller and he never paid into Social Security.

Darsky, Thanks so much for sharing your situation. It is tough out there and sometimes people have no choice but to draw out their money. I hope things are improving for your children. Thanks for the congrats. Love and Hubs girlfriend.


oceansnsunsets profile image

oceansnsunsets 5 years ago from The Midwest, USA

Hi Pamela, I wish that Social Security weren't such a mess, that is really unfortunate. Thank you for sharing your views on 401ks and how wise it is to plan ahead. I don't know of a single person that regretted planning ahead financially.


Pamela99 profile image

Pamela99 5 years ago from United States Author

oceansnsunsets, Me neither. I wish they could do something about Social Security also. Thanks for your comments.


rpalulis profile image

rpalulis 5 years ago from NY

I sure do hope that I am able to enjoy retirement with funds from my 401K. I still have a ways to go, I just hope that when I make money I can discipline myself to put some toward my retirement. I find it more difficult to do this now as I am self employed compared when I just had it automatically taken out of my check every pay check.


drpastorcarlotta profile image

drpastorcarlotta 5 years ago from BREAKOUT MINISTRIES, INC. KC

GOOD ADVICE, very informational!!! Voted useful!!! AMEN!


JY3502 profile image

JY3502 5 years ago from Florence, South Carolina

Pam, good advice indeed. However, the rate of interest paid currently is practically zilch. Maybe there are some better options to invest in these days.


Hello, hello, profile image

Hello, hello, 5 years ago from London, UK

A very comprehensive and informative hub.


Pamela99 profile image

Pamela99 5 years ago from United States Author

rpalulis, I think it is harder for anyone that is self employed. Thanks for your comments.

drpastircarkitta, Thank you so much for your comments. God Bless.

JY Rates are a problem. Bonds are very low as the stock market has risen despite the financial problems of the country. We have some very conservative mutual funds which are making a little money and that's the best thing we've found. Thanks for your comment.

Hello, I appreciate your comment very much.


Sandyspider profile image

Sandyspider 5 years ago from Wisconsin, USA

Very informative info on saving for your 401K.


Pamela99 profile image

Pamela99 5 years ago from United States Author

Sandy, Thanks so much for your comment.


Om Paramapoonya profile image

Om Paramapoonya 5 years ago

A very informative hub. And the video is also very helpful. Rated up. :)


Pamela99 profile image

Pamela99 5 years ago from United States Author

Om Paramapoonya, Thank you so much for your comment.


akirchner profile image

akirchner 5 years ago from Central Oregon

Good job, Pamela and something we should definitely keeping an eye on the older we get!!


Pamela99 profile image

Pamela99 5 years ago from United States Author

Audry, Yes, this becomes a very important topic as we age. I appreciate the comments.


Support Med. profile image

Support Med. 5 years ago from Michigan

However, we get there, hope all will have sufficient funds when we retire. Thanks for sharing this info. Much needed during the season we are in. v/r


Pamela99 profile image

Pamela99 5 years ago from United States Author

Support Med, I think preparing for retirement is more important now than it ever has been. Like you I hope we all have sufficient funds and I appreciate your comments.

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