With a lifelong aim of retiring comfortably – and plenty of talk about a retirement crisis – many Americans may be wondering if what they have saved puts them on a path toward achieving that goal.
One popular savings vehicle – for those to whom it is available – is a 401(k) account.
A 401(k) account is a tax-advantaged, company-sponsored savings plan, with defined contributions – typically from not only employees, but their employers as well. In some cases, employers will match contributions up to a certain percent.
How much an individual should contribute to the account per year varies, though experts often recommend contributing at least the maximum amount that your company will match.
Overall, how much an individual aims to save will depend on his or her lifestyle, budget, expenses and lifestyle expectations in retirement.
But there are some guidelines that can help guide you along your retirement savings journey.
Here’s a look at some milestones to aim for, as compiled by Intuit:
At age 30
By the age of 30, it is recommended that a worker has 401(k) savings equal to one year’s worth of their salary.
So for an individual making $60,000, the suggestion is to have $60,000 saved in the account.
At age 40
By the time an employee turns 40, it is recommended that he or she has three years’ worth of salary saved in the account.
For an individual making $80,000, that would mean he or she should have $240,000 stashed away.
At age 50
Five times a worker’s salary is the suggestion by the age of 50.
For a worker making $100,000, that means $500,000.
Each year, contributions can be made up to a certain established limit. As of 2020, the contribution limit was increased to $19,500, from $19,000. The catch-up contribution limit, for those aged 50 and over, was increased to $6,500 from $6,000.
When it comes to withdrawals, employees generally have to be at least 59 ½ years old in order to touch the money. Early withdrawal results in a penalty of 10 percent, on top of the income taxes owed.
And there are penalties for people who fail to take required minimum distributions by age 72. Failure to take the RMD results in large penalties, equal to 50 percent of the amount that was required to be withdrawn.