From 24/7 Wall St. · Maurie Backman · · 1m 40s
The $625,000 401(k) target for retirement comfort
Social Security alone won't cut it. Here's exactly how much you need saved to double your retirement income.
In brief
Social Security alone won't cut it. Here's exactly how much you need saved to double your retirement income. Start saving $200 monthly at age 25 in a 401(k) earning 8% annually, and you could hit $625,000 by 65, letting you withdraw $25,000 yearly to match Social Security benefits. Originally reported by 24/7 Wall St..
Social Security alone isn't enough
The average monthly Social Security benefit is $2,086, or about $25,000 annually. That's not enough to live comfortably in retirement for most people.
“The average monthly Social Security benefit today is $2,086. On an annual basis, that's only about $25,000, which is clearly not a lot of money to live on.”
Double your income with 401(k) withdrawals
If you withdraw another $25,000 yearly from a 401(k), you'd have $50,000 total annual retirement income. That's a much more comfortable picture than Social Security alone.
“But what if you could somehow withdraw enough from your 401(k) plan to match that $25,000 annual Social Security benefit? You'd then be looking at an annual retirement income of $50,000, which paints a much rosier picture.”
The magic number is $625,000
Using the 4% withdrawal rule, you need a 401(k) balance of $625,000 to safely withdraw $25,000 annually without running out of money.
“To get $25,000 a year out of your savings, you'll need a 401(k) balance of $625,000.”
Start early with consistent contributions
Save $200 monthly starting at age 25 with an 8% annual return, and you'll reach $625,000 by age 65. Time and consistency are your biggest advantages.
“If your 401(k) gives you a yearly 8% return, which is a bit below the stock market's average, after 40 years, your balance could be about $625,000.”
Long timelines let you ride out volatility
With 40 years until retirement, you can afford to load up on stocks despite market downturns. Time smooths out the bumps and lets compound growth work.
“Even if there are market downturns, with a long career ahead of you, there's time to ride out those bumps.”
The market doesn't grow in straight lines
Remember that the 8% return is an illustration. Real markets fluctuate, so actual results will vary. The point is that consistent, early saving compounds powerfully over decades.
“The stock market doesn't necessarily gain value in a steady or linear fashion.”
Start now, even with other debts
Begin funding a 401(k) as soon as you start working, even if you have student loans or credit card debt. Your future self will thank you for the discipline.
“Try getting into the habit of funding a 401(k) as soon as you begin working, even if you still have student loans, credit card debt, and other expenses to manage.”
What matters most
Start saving $200 monthly at age 25 in a 401(k) earning 8% annually, and you could hit $625,000 by 65, letting you withdraw $25,000 yearly to match Social Security benefits.
