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Retirement savings is a bit of a numbers game —you’ve got to figure out how much money you’ll need to save and how long it has to last, accounting for inflation, your life expectancy, and other variables. To help you get there, here are a few numbers to keep in mind now.
60% to 85%
That’s the percentage of your pre-retirement income you’ll have to replace in retirement to maintain your standard of living. So if you make $50,000 a year before retirement, you need to have $30,000 to $42,500 a year in retirement.
A valuable number—actually, it’s a section of the Internal Revenue Code. A 401(k) is an employer-sponsored retirement savings plan where generally you can save pre-tax. Also, your employer may contribute on your behalf and/or match what you put in—both of which are “free” money. Be sure to contribute enough to get the full match.
10 to 15%
That’s the approximate percentage of your annual income you’ll need to save toward retirement to meet your goal. Remember that your employer’s 401(k) contribution and match are included in that amount.
78 and 82
These are the average life expectancies of today’s 40-year-old male and female. Plan on living at least that long to make sure your retirement savings doesn’t run out.
That’s about how much today’s average 40-year-old male needs to save for retirement, assuming he retires at age 65, makes $50,000 a year, and wants to replace 85% of his income to age 78. Yikes!
This is the minimum age to begin collecting Social Security benefits. Delay collecting even longer and you’ll receive even more.
You need to reach this age before you can access the money in your 401(k) or IRA without penalties.
With a 401(k) or Traditional IRA, you have to start taking minimum required distributions (MRDs) at this age. (Not so with a Roth.)