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davidcdelreal · 6 years

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How Much Should You Have in Your 401(k)?

Everybody likes to talk about how much they’re contributing to their 401(k) plans, or about how much they should be contributing to their 401(k) plans. That’s important, no doubt. But the bigger question should be the end game. That’s how much you should have in your 401(k). That’s the real measure of success or failure of any retirement plan which involves the 401(k) as the main piece. It’s a tough proposition. Everybody’s in a different situation, as far as age, income, immediate financial condition, and risk tolerance. There’s no scientific way to determine how much you should have in your 401(k), but we're going to take a stab at it, by approaching it from several different angles. We’ll break it down this way… Table of Contents – What We’ll Cover in this Post:

The State of American Retirement – It Needs Improvement!

Contributing Just Enough to Max-Out the Employer Match Will Fail

You Need to Contribute at Least 20% of Your Income for Retirement

Don’t Randomly Pick Investments for Your 401(k)

And Don’t Let Your Co-workers Tell You What Investments to Pick Either!

While You’re At It – Stay Away From Target Date Funds

If You Have a Roth 401(k) Take Advantage of It

Don't Forget About the Roth IRA, Too

How Much Should YOU Have in Your 401(k)?

Let’s start with the bad news first…

The State of American Retirement – It Needs Improvement!

In a perfect world, the average person would either have a seven-figure 401(k) plan by retirement, or at least be heading in that general direction. But that’s not what’s happening. The chart below shows mean retirement account savings of families between 1989 and 2013. I’d really like to have found an objective, authoritative source that provides updated information. After all, 2013 was four years ago, we’ve had quite a run in the stock market since. But, this means the numbers in the chart are almost certainly higher now. But even if that’s the case, the numbers below are for families, not individuals. As well, they take in various retirement plans, and include IRAs and Keogh plans, in addition to 401(k) plans. I’m concerned about this because the 401(k) plan is the most generous of all retirement plans. If the chart below is any indication, the 401(k) numbers are even lower. It means that people aren’t taking full advantage of what may very well be the best retirement plan there is. (Source: Economic Policy Institute – The State of American Retirement, March 3, 2016 ) The chart shows families by age bracket, but the ones that are most important are the 50 to 55-year-old age bracket, and 56 to 61. Those are the people who are on-deck to retire. And what we see is the 50 – 55 group averages less than $125,000, while the older group – who are just about to retire – have only just above $163,577. The problem I have with both numbers is that neither is remotely close to being a sufficient number for real-world retirement.

Contributing Just Enough to Max-out the Employer Match will Fail

I often recommend contributing at least enough to a 401(k) plan to get the maximum employer match. If an employer matches 50% up to 3%, then you contribute 6%. That will give you a combined contribution of 9% per year. But there’s a problem with this recommendation. It’s not that it’s bad advice – it certainly makes sense for someone who is struggling with financial limits, and needs a minimum contribution level. The problem is when the minimum contribution becomes the maximum contribution. There’s no question, 9% is way better than nothing. But if you intend to retire, it won’t get the job done! The other problem is that the employer match typically comes with a vesting period. That could be up to five years. If you stay on the job substantially less, you’ll lose some or all of the match. That will drop you down to only your 6% contribution.

An example of contributing just enough to max-out the employer match

Let’s assume you’re 35 years old, and earn $50,000 per year. You contribute 6% of your salary to your 401(k) plan, and your employer matches that at 50%, or 3%. Over the next 30 years, you earn an average annual rate of return on your investments of 7%.

By the time you’re 65 years old, you’ll have $441,032.

That may seem like a lot of money from where you’re at right now. But when retirement rolls around, it will probably be inadequate. Here’s why: it’s called the safe withdrawal rate. It holds that if you limit your withdrawals from your retirement plan to about 4% per year, you will never outlive your money. You can see the wisdom of that, can’t you? But a retirement portfolio of $441,032 with withdrawals at 4%, is just $17,641 per year, and that's just $1,470 per month. Since most employers no longer provide traditionally defined benefit pension plans, you’ll have to live on that, plus your Social Security benefit. Let’s say that your Social Security benefit is $1,500 per month. What kind of retirement will you have with an income of $2,970 per month? You won’t do much better than just getting by on that kind of retirement income. My guess is that you won’t even be retired at all.

You Need to Contribute at Least 20% of Your Income for Retirement

Most people expect that retirement will be more than just getting by.

Retirement isn’t just a number – it’s the sum total of what you will take out of a lifetime of hard work. It should provide you with an income that will give you more than just basic survival.

For that reason, you need to contribute at least 20% of your income to your retirement plan. The only way for most people to do that is through a 401(k) plan at work. Let’s look at another example. Let’s the same financial profile from the last example, but instead of making a 6% contribution, you instead contribute 20% of your salary. The employer match will remain a 3%, giving you a combined annual contribution of 23% of your income. What will your retirement look like by age 65? How about $1,127,066???

4% of $1,127,066 will be $45,083, or $3,756 per month. Adding in $1,500 for Social Security, and you’re up to $5,256, which is more than you earn on your job!

Are you getting excited? You should be.

Don’t Randomly Pick Investments for Your 401(k)

Next to low contribution rates, the biggest problem with most 401(k) plans is poor investment selection. Sometimes that’s inevitable, because some 401(k) plans just have very limited investment selection. But in other cases, the owner of the plan just makes bad choices.

What makes investment choices bad?

Investing too conservatively, by favoring fixed income investments for safety

Holding too much company stock, which is a classic case of “putting too many eggs in one basket”

Not having adequate diversification

Adding random investments to your plan, like “hot tip” stocks

Trading too frequently, which causes high transaction fees, and usually doesn’t work anyway

Designing your portfolio in a way that’s inconsistent with your long-term goals

Let’s face it, most people are not investment professionals. That means you can’t rely on your own resources in creating and managing what will eventually become your largest incoming-producing asset. And that means you need to get help. One source is Personal Capital. That’s an investment service that doesn’t manage your 401(k) plan directly, but it does provide guidance on how to invest the plan. They do that through their Retirement Planner and 401(k) Fund Allocation tools. Another service that’s growing rapidly is Bloom. It’s an investment service that will provide you with investment management for your 401(k) plan. The service cost just $10 per month, which is a small price to pay to get professional investment advice for your largest asset.

And Don’t let Your Co-workers Tell You What Investments to Pick Either!

One of the complications with 401(k) plan management is the herd mentality. It happens in most companies and departments. Someone says go to the right, and everyone turns to the right without giving it much thought. We’re virtually programmed to operate that way in an organizational environment. But it’s financial suicide when it comes to investing for retirement. We should never presume that a coworker, or even a boss, has some sort of superior knowledge when it comes to investments. That person might be bragging about what he is investing in, maybe to get moral support for his decision. But that doesn’t mean that it’s winning advice.

You, and you alone, will one day need to live on your retirement portfolio. You shouldn’t trust that outcome to what amounts to water cooler gossip.

While You’re at it – Stay Away from Target Date Funds

There’s one type of investment that’s gaining in popularity, and I don’t think it’s a healthy development. It’s target date funds. I don’t have a good feeling about them, and that’s why I don’t recommend them. In fact, I hate target date funds. Does that sound too strong? Target date funds are one of those innovations that work better in theory than they do in reality. They start with your retirement date, which is why they’re called “target date funds”. If you plan to retire at age 65, they’ll have tiered plans (which are actually mutual funds). They have one when you’re 40 years from retirement, another when you’re 30 years out, then 20 years, and 10 years. That may not be exactly how they all work, but that’s the basic idea. The target dates mostly adjust your portfolio allocation. That is, the closer that you are to retirement, the higher the bond allocation is, and the less that’s invested in stocks. The concept is to reduce portfolio risk as you move closer to retirement. That all sounds reasonable on paper. But it has two problems.

One is target date funds have unusually high fees. That reduces the return on your investment.

The other is they arbitrarily reduce growth in your portfolio as you move closer to retirement.

That generally makes sense, but not for people who either have a higher risk tolerance, or those who need healthier returns as they move closer to retirement. Avoid these funds, no matter how hard the pitch is for them.

If You Have a Roth 401(k) Take Advantage of it

A growing twist on the basic 401(k) plan is the Roth 401(k). It works just like a Roth IRA. Your contributions to the plan are not tax-deductible, but your withdrawals can be taken tax-free. That’s as long as you are at least 59 ½, and have been in the plan for at least five years. The Roth 401(k) has two major differences from a Roth IRA. The first is that the Roth 401(k) is subject to required minimum distributions (RMDs) beginning at age 70 1/2. A Roth IRA is not. (You can get around this problem by rolling your Roth 401(k) plan into a Roth IRA.)

The second is the amount of your contribution. While a Roth IRA is limited to $5,500 per year (or $6,500 if you are 50 or older), contributions to a Roth 401(k) are the same as they are for a traditional 401(k). That’s $18,000 per year, or $24,000 if you are 50 or older.

This doesn’t mean that you can put $18,000 in a traditional 401(k), and another $18,000 into a Roth 401(k). You must allocate between the two. It makes a lot of sense to do this. You will lose tax deductibility on the amount of your contribution that goes to the Roth 401(k). But by making the allocation, you ensure that at least some of your retirement income will be free from income tax. If your 401(k) plan offers the Roth option, you should absolutely take advantage of it. It’s a form of income tax diversification for your retirement.

Don't Forget About the Roth IRA, Too

If your employer doesn’t offer a Roth 401(k), then you should contribute at least some of your retirement money to a Roth IRA. There are income limits beyond which you cannot contribute to a Roth IRA (those limits don’t apply to Roth 401(k) contributions). For 2017, your income cannot exceed $118,000 per year if you are single, or $186,000 if you’re married filing jointly. Having a Roth IRA, in addition to your 401(k), has several advantages:

It increases your total retirement contributions. If you are contributing $18,000 to your 401(k), plus $5,500 to a Roth IRA, that raises your annual contribution to $23,500.

Roth IRAs are self-directed accounts. That means that you can hold the account with a large investment brokerage firm that offers virtually unlimited investment options.

You will have complete control over how the plan is managed. The account could even invest the account with a robo advisor, which will provide you with low-cost professional investment management. (Two popular choices are Betterment and Wealthfront.)

You’ll have an account ready and waiting, in case you want to do a Roth IRA conversion. It’s a popular way to convert taxable retirement income into tax-free retirement income.

Set up and contribute to a self-directed Roth IRA account, if you qualify. It’s become a retirement must-have.

How Much Should You Have in Your 401(k)?

With all the above information in mind, how much should you have in your 401(k)? The answer is: as much as you think you’ll need to retire. Does that sound too vague? Let’s start with this…make sure that you have more in your 401(k) than the average person does. Based on the information presented in the chart at the beginning of this article, the average person won’t be able to retire. You don’t want to be average. You want to be above average. And you need to be. And don’t be one of those people who pokes along throughout their career, making the minimum 401(k) contribution to get the maximum employer match. As I showed earlier, that won’t get you there either. Let’s go through some steps that can help you determine how much money you’ll need when you retire:

Determine how much annual income you’ll need when you retire. The rule of thumb is that you use 80% of your pre-retirement income. That’s a good start, but you should make adjustments for variations. This can include higher healthcare and travel expenses, but lower housing and debt payments.

Subtract pension and Social Security income. You can get a pension estimate from your employee benefits department. For Social Security, you can use the Retirement Estimator tool that will give you an approximate benefit.

Divide the remaining amount by .04. That’s the 4% safe withdrawal rate. It will tell you how large of a retirement portfolio you’ll need to produce the necessary income.

Determine how much you will need to reach that portfolio size. Project how much you will need to contribute to your 401(k) plan and other retirement plans in order to reach the needed portfolio size. Just make sure that your return on investment calculations are reasonable.

Working a Retirement Plan Example

You can get as complicated as you want with this exercise, but let’s keep it simple.

Let’s assume that you earn $100,000 per year. You estimate needed retirement income at 80% of that number, or $80,000 per year.

You expect to receive $30,000 in Social Security income, but are not eligible for a pension. That means that your retirement portfolio will need to provide the remaining $50,000 in income.

Dividing $50,000 by .04 (4%), shows that you will need a retirement portfolio of $1.25 million.

In order to reach $1.25 million by age 65 (you’re currently 40), will require that you contribute 20% of your annual income, or $20,000 per year to your 401(k) plan. This assumes a 3% employer match, and a 7% annual rate of return on your investment.

You can also take the easy route by using an online retirement calculator, like the Bankrate Retirement Calculator.

In order to make his retirement goal, the 40-year-old in our example would need to hit (roughly) the following 401(k) balances at various ages in order to reach $1.25 million by age 65:

At age 45, $110,000

Age 50, $260,000

Age 55, $490,000

By age 60, $800,000

However you calculate how much you should have in your 401(k), what I want you to take away from this article is that the amount that you actually need is way above what you probably have. At least that’s the case if you’re the average person. That’s why I recommend that you decide that you’re not going to be average when it comes to your 401(k) plan. If you want a better-than-average retirement, you’ll need to have a better than average plan. Set your own goals, based on your own needs.

The post How Much Should You Have in Your 401(k)? appeared first on Good Financial Cents.

from All About Insurance https://www.goodfinancialcents.com/how-much-in-your-401k/

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easyweight101 · 7 years

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Hersolution Review (UPDATED 2017): Don’t Buy Before You Read This!

What is it?

Hersolution is a sexual enhancement pill for women aimed at improving libido. The makers of Hersolution claim there are no adverse effects associated with use, and this product enhances natural lubrication, sensation and an increased appetite for sex.

Hersolution is made from a blend of herbal aphrodisiacs, as well as those that increase estrogen production inside the body. This product is meant for use by women of all ages and aims to even out any hormonal cause of low libido — whether its menopause, menstruation or poor diet.

After looking at a long list of menopause products, we’ve found Femmetrinol is the best supplement out there for helping women get their sex lives back on track, as well as fighting day to day discomforts like hot flashes and night sweats. Click here to learn more about the physical and mental benefits you’ll receive when you take Femmetrinol.

Top Rated Menopause Supplements of 2017

Do you know the Best Menopause Supplements of 2017?

Hersolution Ingredients and Side Effects

Hersolution is made from a collection of herbs, each thought to have some effect on a woman’s desire for sex, as well as her ability to become aroused and lubricated, naturally. Here’s a brief look at what you can expect to find in the Hersolution formula:

Gingko Biloba Hops Niacin Mucuna Pruriens Epimedium Sagitattum Cayenne Pepper

Gingko Biloba: Gingko is used for a number of conditions and has long been a staple in traditional Chinese, Korean and Japanese medicine. People often take gingko to improve memory and cognition, and boost the immune system.

It may also have a use in treating anxiety and depression due to its effect on the brain and central nervous system.

Hops: A plant with mild estrogenic effects, hops are used to treat anxiety, restlessness, insomnia and nerve pain.

Mucuna Pruriens: Often used to treat Parkinson’s disease and depression, mucuna pruriens contains L-DOPA, which could improve the body’s production of dopamine. This ingredient may also be used to stimulate the libido.

Side effects may include low blood pressure, fainting, dizziness and irregular heartbeat. In large doses, side effects may also include hallucinations or confusion.

Epimedium Sagitattum: An herb used for its aphrodisiac effects, epimedium may help treat menopause symptoms, as well as improve athletic performance and energy levels.

Side effects may include dry mouth, nausea, vomiting, diarrhea and headaches.

Cayenne Pepper: Cayenne pepper is thought to improve metabolism, prevent blood clots, relieve headaches, nerve and joint pain and help digestion. This spicy pepper has anti-inflammatory effects and may even help heal and prevent ulcers, as well as fight off incoming cold and flu bacteria.

Niacin: Niacin, or vitamin B3, is an essential nutrient for maintaining cardiovascular health, as well as managing a healthy level of cholesterol. It may also help open the blood vessels in the body, allowing more blood to flow to the genitals.

Niacin may cause flushing in the face, as well as upset stomach or diarrhea.

Click here to find out how you can manage your menopause symptoms with plant-based estrogens.

EDITOR’S TIP: Combine this supplement with a proven menopause pill such as Femmetrinol for better results.

Hersolution Quality of Ingredients

Hersolution contains a lot of ingredients like epimedium and mucuna pruriens that are often used in male sexual enhancement products. Upon quick observation, Hersolution doesn’t seem especially tailored to female sexual desire.

But, there’s definitely the potential for the Hersolution to provide some sexual benefits. Users should be aware of the potential risks associated with some of the components of this formula, but we’ll look at this in the review section below.

The main problem we have with this product is, it’s too generalized to provide many benefits to menopausal women. The only ingredient in the mix known to have an effect on estrogen is hops—which is not an especially strong source of phytoestrogens, though it does have the ability to provide stress relief and relaxation with use.

Click here to learn what you should look for in a female sexual enhancement product.

The Price and Quality of Hersolution

Hersolution is sold by the manufacturer of this product on the official webpage. The site claims the regular price for a one-month supply is $69.95, though it’s currently offered at $59.95.

If users decide to “subscribe and save,” the price of a one-month supply of Hersolution drops down to $49.95. Additionally, the site features various tiers of packages — the Diamond Package, for example, comes with 6 boxes of pills, a vibrator and a complimentary tube of lubricating gel.

We’re always wary of auto-shipping subscriptions as they may be difficult to cancel. This company gives consumers an option to pay this way or order product as needed, so it may not be a big issue with this website.

We’re not sure whether Hersolution is actually a good value, as we don’t know how long this lasts. The website doesn’t provide a clear dose amount. They just mention that this should be used once or twice a day.

Additionally, users may buy this product from Amazon for $55.95. It doesn’t look like there are any other third-party sellers offering Hersolution at a discount.

Even if consumers get the $50/month autopay solution, this product still seems rather costly. Yes, you can buy more product at a time and save, but buying six months up front to get a discount and a free vibrator still seems like a big commitment for many potential buyers.

Click this link to read about the best products for improving your post-menopausal sex drive.

Business of Hersolution

Hersolution is made by the company, Leading Edge Health. We’ve included their contact information below:

Phone: 866-621-6886

Address: 100 Fidelitone Way Elizabethton TN 37643 United States of America

The Hersolution webpage looks like a lot of supplement websites designed to trap users in a recurring payment cycle. The product is expensive and never offers any backing information to their long list of claims.

This product is made by a company known as Leading Edge Health, a company known for making a range of supplements like VigRX and GenF20 that sound too good to be true.

The site for this product features a lot of text — but most of it consists of unsubstantiated claims. The entire “how it works” page does not actually tell users how this works—just that it does work. There is a list of the ingredients and a brief description of each, but beyond that, there’s no science backing the claims to restore women’s sex lives.

Hersolution, based on the website, does not seem to be a quality product. Users considering a menopause product that enhances sexual wellbeing should consider something that addresses hormone balance better than this product does. Restoring a balance between estrogen and progesterone goes a long way in helping women desire sex once again.

Customer Opinions of Hersolution

Hersolution has a large portion of negative reviews. Many of the people who felt compelled to leave their feedback claimed this product did not work:

“I’m in my 50s and really wasn’t interested in having sex with my husband any longer. After purchasing Hersolution, my libido started to come back, and I feel like having sex about 5 times a week these days..”

“I had heard some good things about this product, and thought I’d give it a try. Needless to say, I was extremely disappointed. I did only take it for a month, not sure how long it takes for the formula to kick in.”

“I’ve been taking this product every day for a month — and I’ve yet to notice any improvement in my desire or sexual function. It’s far too expensive for not producing any results, if you ask me..”

“I spent an awful lot of money on a two-month supply, and I’m well into the second package with no improvements to report. I’d recommend avoiding this unless you can get a free trial or something.”

Hersolution does not have very good reviews, in fact more than half left on Amazon reflected a negative experience with the product.

Most users echoed similar experiences, they tried the product for more than a month and still saw no changes. There were a handful of reviewers who mentioned that this product was especially helpful for them, but they were few and far between.

Of the positive reviews we came across, there were no mentions of whether this product alleviated any menopause symptoms aside from increasing sexual desire with use. For that reason, we likely wouldn’t recommend this to our readers.

Click here to learn more about our experts’ favorite menopause supplements.

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Conclusion – Does Hersolution Work?

Hersolution may be an effective aphrodisiac for some users, but most of the reviews we found suggested that results were inconsistent, at best.

Hersolution does not contain any ingredients that suggest this formula is specifically designed for women’s unique body chemistry. In fact, this formula looks almost identical to some of the male enhancement products we’ve looked at in the past.

Overall, we’d recommend that potential users reconsider using this product for their menopausal needs. In terms of treating the root cause of menopause symptoms—a loss of female hormones, this likely won’t do anything.

After looking at a variety of menopause products, we have discovered that Femmetrinol is the best supplement on the market in terms of bringing widespread relief to women.

Femmetrinol made with a blend of clinically tested herbs — designed to keep consumers safe, while effectively alleviating bothersome symptoms. Click through to our webpage for a look at how Femmetrinol can treat your menopause-related discomfort.

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davidcdelreal · 6 years

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How Much Should You Have in Your 401(k)?

The State of American Retirement – It Needs Improvement!

Contributing Just Enough to Max-Out the Employer Match Will Fail

You Need to Contribute at Least 20% of Your Income for Retirement

Don’t Randomly Pick Investments for Your 401(k)

And Don’t Let Your Co-workers Tell You What Investments to Pick Either!

While You’re At It – Stay Away From Target Date Funds

If You Have a Roth 401(k) Take Advantage of It

Don't Forget About the Roth IRA, Too

How Much Should YOU Have in Your 401(k)?

Let’s start with the bad news first…

The State of American Retirement – It Needs Improvement!

Contributing Just Enough to Max-out the Employer Match will Fail

An example of contributing just enough to max-out the employer match

By the time you’re 65 years old, you’ll have $441,032.

You Need to Contribute at Least 20% of Your Income for Retirement

Most people expect that retirement will be more than just getting by.

Retirement isn’t just a number – it’s the sum total of what you will take out of a lifetime of hard work. It should provide you with an income that will give you more than just basic survival.

4% of $1,127,066 will be $45,083, or $3,756 per month. Adding in $1,500 for Social Security, and you’re up to $5,256, which is more than you earn on your job!

Are you getting excited? You should be.

Don’t Randomly Pick Investments for Your 401(k)

What makes investment choices bad?

Investing too conservatively, by favoring fixed income investments for safety

Holding too much company stock, which is a classic case of “putting too many eggs in one basket”

Not having adequate diversification

Adding random investments to your plan, like “hot tip” stocks

Trading too frequently, which causes high transaction fees, and usually doesn’t work anyway

Designing your portfolio in a way that’s inconsistent with your long-term goals

And Don’t let Your Co-workers Tell You What Investments to Pick Either!

You, and you alone, will one day need to live on your retirement portfolio. You shouldn’t trust that outcome to what amounts to water cooler gossip.

While You’re at it – Stay Away from Target Date Funds

One is target date funds have unusually high fees. That reduces the return on your investment.

The other is they arbitrarily reduce growth in your portfolio as you move closer to retirement.

If You Have a Roth 401(k) Take Advantage of it

Don't Forget About the Roth IRA, Too

It increases your total retirement contributions. If you are contributing $18,000 to your 401(k), plus $5,500 to a Roth IRA, that raises your annual contribution to $23,500.

Roth IRAs are self-directed accounts. That means that you can hold the account with a large investment brokerage firm that offers virtually unlimited investment options.

You’ll have an account ready and waiting, in case you want to do a Roth IRA conversion. It’s a popular way to convert taxable retirement income into tax-free retirement income.

Set up and contribute to a self-directed Roth IRA account, if you qualify. It’s become a retirement must-have.

How Much Should You Have in Your 401(k)?

Divide the remaining amount by .04. That’s the 4% safe withdrawal rate. It will tell you how large of a retirement portfolio you’ll need to produce the necessary income.

Working a Retirement Plan Example

You can get as complicated as you want with this exercise, but let’s keep it simple.

Let’s assume that you earn $100,000 per year. You estimate needed retirement income at 80% of that number, or $80,000 per year.

You expect to receive $30,000 in Social Security income, but are not eligible for a pension. That means that your retirement portfolio will need to provide the remaining $50,000 in income.

Dividing $50,000 by .04 (4%), shows that you will need a retirement portfolio of $1.25 million.

You can also take the easy route by using an online retirement calculator, like the Bankrate Retirement Calculator.

In order to make his retirement goal, the 40-year-old in our example would need to hit (roughly) the following 401(k) balances at various ages in order to reach $1.25 million by age 65:

At age 45, $110,000

Age 50, $260,000

Age 55, $490,000

By age 60, $800,000

The post How Much Should You Have in Your 401(k)? appeared first on Good Financial Cents.

from All About Insurance https://www.goodfinancialcents.com/how-much-in-your-401k/

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davidcdelreal · 6 years

Text

How Much Should You Have in Your 401(k)?

Everybody likes to talk about how much they’re contributing to their 401(k) plans, or about how much they should be contributing to their 401(k) plans.

That’s important, no doubt.

But the bigger question should be the end game. That’s how much you should have in your 401(k).

That’s the real measure of success or failure of any retirement plan which involves the 401(k) as the main piece.

It’s a tough proposition. Everybody’s in a different situation, as far as age, income, immediate financial condition, and risk tolerance.

There’s no scientific way to determine how much you should have in your 401(k), but we're going to take a stab at it, by approaching it from several different angles.

We’ll break it down this way…

Table of Contents – What We’ll Cover in this Post:

The State of American Retirement – It Needs Improvement!

Contributing Just Enough to Max-Out the Employer Match Will Fail

You Need to Contribute at Least 20% of Your Income for Retirement

Don’t Randomly Pick Investments for Your 401(k)

And Don’t Let Your Co-workers Tell You What Investments to Pick Either!

While You’re At It – Stay Away From Target Date Funds

If You Have a Roth 401(k) Take Advantage of It

Don't Forget About the Roth IRA, Too

How Much Should YOU Have in Your 401(k)?

Let’s start with the bad news first…

The State of American Retirement – It Needs Improvement!

In a perfect world, the average person would either have a seven-figure 401(k) plan by retirement, or at least be heading in that general direction.

But that’s not what’s happening.

The chart below shows mean retirement account savings of families between 1989 and 2013. I’d really like to have found an objective, authoritative source that provides updated information.

After all, 2013 was four years ago, we’ve had quite a run in the stock market since. But, this means the numbers in the chart are almost certainly higher now.

But even if that’s the case, the numbers below are for families, not individuals. As well, they take in various retirement plans, and include IRAs and Keogh plans, in addition to 401(k) plans.

I’m concerned about this because the 401(k) plan is the most generous of all retirement plans.

If the chart below is any indication, the 401(k) numbers are even lower. It means that people aren’t taking full advantage of what may very well be the best retirement plan there is.

(Source: Economic Policy Institute – The State of American Retirement, March 3, 2016 )

The chart shows families by age bracket, but the ones that are most important are the 50 to 55-year-old age bracket, and 56 to 61.

Those are the people who are on-deck to retire.

And what we see is the 50 – 55 group averages less than $125,000, while the older group – who are just about to retire – have only just above $163,577.

The problem I have with both numbers is that neither is remotely close to being a sufficient number for real-world retirement.

Contributing Just Enough to Max-out the Employer Match will Fail

But there’s a problem with this recommendation. It’s not that it’s bad advice – it certainly makes sense for someone who is struggling with financial limits, and needs a minimum contribution level.

The problem is when the minimum contribution becomes the maximum contribution. There’s no question, 9% is way better than nothing. But if you intend to retire, it won’t get the job done!

The other problem is that the employer match typically comes with a vesting period. That could be up to five years. If you stay on the job substantially less, you’ll lose some or all of the match. That will drop you down to only your 6% contribution.

An example of contributing just enough to max-out the employer match

Let’s assume you’re 35 years old, and earn $50,000 per year.

You contribute 6% of your salary to your 401(k) plan, and your employer matches that at 50%, or 3%.

Over the next 30 years, you earn an average annual rate of return on your investments of 7%.

By the time you’re 65 years old, you’ll have $441,032.

That may seem like a lot of money from where you’re at right now. But when retirement rolls around, it will probably be inadequate.

Here’s why: it’s called the safe withdrawal rate.

It holds that if you limit your withdrawals from your retirement plan to about 4% per year, you will never outlive your money. You can see the wisdom of that, can’t you?

But a retirement portfolio of $441,032 with withdrawals at 4%, is just $17,641 per year, and that's just $1,470 per month.

Since most employers no longer provide traditionally defined benefit pension plans, you’ll have to live on that, plus your Social Security benefit.

Let’s say that your Social Security benefit is $1,500 per month.

What kind of retirement will you have with an income of $2,970 per month?

You won’t do much better than just getting by on that kind of retirement income. My guess is that you won’t even be retired at all.

You Need to Contribute at Least 20% of Your Income for Retirement

Most people expect that retirement will be more than just getting by.

Retirement isn’t just a number – it’s the sum total of what you will take out of a lifetime of hard work. It should provide you with an income that will give you more than just basic survival.

For that reason, you need to contribute at least 20% of your income to your retirement plan. The only way for most people to do that is through a 401(k) plan at work.

Let’s look at another example. Let’s the same financial profile from the last example, but instead of making a 6% contribution, you instead contribute 20% of your salary. The employer match will remain a 3%, giving you a combined annual contribution of 23% of your income.

What will your retirement look like by age 65?

How about $1,127,066???

4% of $1,127,066 will be $45,083, or $3,756 per month. Adding in $1,500 for Social Security, and you’re up to $5,256, which is more than you earn on your job!

Are you getting excited? You should be.

Don’t Randomly Pick Investments for Your 401(k)

Next to low contribution rates, the biggest problem with most 401(k) plans is poor investment selection.

Sometimes that’s inevitable, because some 401(k) plans just have very limited investment selection. But in other cases, the owner of the plan just makes bad choices.

What makes investment choices bad?

Investing too conservatively, by favoring fixed income investments for safety

Holding too much company stock, which is a classic case of “putting too many eggs in one basket”

Not having adequate diversification

Adding random investments to your plan, like “hot tip” stocks

Trading too frequently, which causes high transaction fees, and usually doesn’t work anyway

Designing your portfolio in a way that’s inconsistent with your long-term goals

And that means you need to get help.

One source is Personal Capital. That’s an investment service that doesn’t manage your 401(k) plan directly, but it does provide guidance on how to invest the plan.

They do that through their Retirement Planner and 401(k) Fund Allocation tools.

Another service that’s growing rapidly is Bloom. It’s an investment service that will provide you with investment management for your 401(k) plan.

The service cost just $10 per month, which is a small price to pay to get professional investment advice for your largest asset.

And Don’t let Your Co-workers Tell You What Investments to Pick Either!

One of the complications with 401(k) plan management is the herd mentality.

It happens in most companies and departments. Someone says go to the right, and everyone turns to the right without giving it much thought. We’re virtually programmed to operate that way in an organizational environment.

But it’s financial suicide when it comes to investing for retirement.

We should never presume that a coworker, or even a boss, has some sort of superior knowledge when it comes to investments. That person might be bragging about what he is investing in, maybe to get moral support for his decision.

But that doesn’t mean that it’s winning advice.

You, and you alone, will one day need to live on your retirement portfolio. You shouldn’t trust that outcome to what amounts to water cooler gossip.

While You’re at it – Stay Away from Target Date Funds

There’s one type of investment that’s gaining in popularity, and I don’t think it’s a healthy development.

It’s target date funds.

I don’t have a good feeling about them, and that’s why I don’t recommend them.

In fact, I hate target date funds. Does that sound too strong?

Target date funds are one of those innovations that work better in theory than they do in reality.

They start with your retirement date, which is why they’re called “target date funds”. If you plan to retire at age 65, they’ll have tiered plans (which are actually mutual funds).

They have one when you’re 40 years from retirement, another when you’re 30 years out, then 20 years, and 10 years. That may not be exactly how they all work, but that’s the basic idea.

The target dates mostly adjust your portfolio allocation. That is, the closer that you are to retirement, the higher the bond allocation is, and the less that’s invested in stocks.

The concept is to reduce portfolio risk as you move closer to retirement.

That all sounds reasonable on paper.

But it has two problems.

One is target date funds have unusually high fees. That reduces the return on your investment.

The other is they arbitrarily reduce growth in your portfolio as you move closer to retirement.

That generally makes sense, but not for people who either have a higher risk tolerance, or those who need healthier returns as they move closer to retirement.

Avoid these funds, no matter how hard the pitch is for them.

If You Have a Roth 401(k) Take Advantage of it

A growing twist on the basic 401(k) plan is the Roth 401(k).

It works just like a Roth IRA. Your contributions to the plan are not tax-deductible, but your withdrawals can be taken tax-free. That’s as long as you are at least 59 ½, and have been in the plan for at least five years.

The Roth 401(k) has two major differences from a Roth IRA.

The first is that the Roth 401(k) is subject to required minimum distributions (RMDs) beginning at age 70 1/2. A Roth IRA is not. (You can get around this problem by rolling your Roth 401(k) plan into a Roth IRA.)

The second is the amount of your contribution.

While a Roth IRA is limited to $5,500 per year (or $6,500 if you are 50 or older), contributions to a Roth 401(k) are the same as they are for a traditional 401(k). That’s $18,000 per year, or $24,000 if you are 50 or older.

This doesn’t mean that you can put $18,000 in a traditional 401(k), and another $18,000 into a Roth 401(k). You must allocate between the two.

It makes a lot of sense to do this. You will lose tax deductibility on the amount of your contribution that goes to the Roth 401(k). But by making the allocation, you ensure that at least some of your retirement income will be free from income tax.

If your 401(k) plan offers the Roth option, you should absolutely take advantage of it. It’s a form of income tax diversification for your retirement.

Don't Forget About the Roth IRA, Too

If your employer doesn’t offer a Roth 401(k), then you should contribute at least some of your retirement money to a Roth IRA.

There are income limits beyond which you cannot contribute to a Roth IRA (those limits don’t apply to Roth 401(k) contributions).

For 2017, your income cannot exceed $118,000 per year if you are single, or $186,000 if you’re married filing jointly.

Having a Roth IRA, in addition to your 401(k), has several advantages:

It increases your total retirement contributions. If you are contributing $18,000 to your 401(k), plus $5,500 to a Roth IRA, that raises your annual contribution to $23,500.

Roth IRAs are self-directed accounts. That means that you can hold the account with a large investment brokerage firm that offers virtually unlimited investment options.

You’ll have an account ready and waiting, in case you want to do a Roth IRA conversion. It’s a popular way to convert taxable retirement income into tax-free retirement income.

Set up and contribute to a self-directed Roth IRA account, if you qualify. It’s become a retirement must-have.

How Much Should You Have in Your 401(k)?

With all the above information in mind, how much should you have in your 401(k)?

The answer is: as much as you think you’ll need to retire.

Does that sound too vague?

Let’s start with this…make sure that you have more in your 401(k) than the average person does. Based on the information presented in the chart at the beginning of this article, the average person won’t be able to retire.

You don’t want to be average. You want to be above average. And you need to be.

And don’t be one of those people who pokes along throughout their career, making the minimum 401(k) contribution to get the maximum employer match. As I showed earlier, that won’t get you there either.

Let’s go through some steps that can help you determine how much money you’ll need when you retire:

Divide the remaining amount by .04. That’s the 4% safe withdrawal rate. It will tell you how large of a retirement portfolio you’ll need to produce the necessary income.

Working a Retirement Plan Example

You can get as complicated as you want with this exercise, but let’s keep it simple.

Let’s assume that you earn $100,000 per year. You estimate needed retirement income at 80% of that number, or $80,000 per year.

You expect to receive $30,000 in Social Security income, but are not eligible for a pension. That means that your retirement portfolio will need to provide the remaining $50,000 in income.

Dividing $50,000 by .04 (4%), shows that you will need a retirement portfolio of $1.25 million.

You can also take the easy route by using an online retirement calculator, like the Bankrate Retirement Calculator.

In order to make his retirement goal, the 40-year-old in our example would need to hit (roughly) the following 401(k) balances at various ages in order to reach $1.25 million by age 65:

At age 45, $110,000

Age 50, $260,000

Age 55, $490,000

By age 60, $800,000

However you calculate how much you should have in your 401(k), what I want you to take away from this article is that the amount that you actually need is way above what you probably have.

At least that’s the case if you’re the average person.

That’s why I recommend that you decide that you’re not going to be average when it comes to your 401(k) plan. If you want a better-than-average retirement, you’ll need to have a better than average plan.

Set your own goals, based on your own needs.

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