Am I Saving Enough for Retirement?

A reader maxes out his 401(k), but still worries, and rightfully so.


Dear Alpha Consumer,

My wife and I have been trying to max-out our 401(k) contributions while we can, which means we are currently contributing $16,500 a year into our accounts. If we continue to do that, will we have enough to retire on when we’re 65? Sometimes it feels like a hopeless battle, given the fact that our investments haven’t grown much since we started saving about 10 years ago.

-- Saving But Frustrated

Dear SBF,

Congratulations for saving so much money each year – most people are saving far less than you are. But that doesn’t mean you can kick back and assume you’ll have a flush retirement. I plugged in some numbers for you into the retirement calculator at Making some assumptions, including a rate of return of 6 percent and that you started saving at age 28, you can expect to have over $2 million by the time you retire.

That might sound like a big number – and it is – but once you consider how expensive retirement could be, it might not be that much. For example, you could live to be 99, and if you retire at age 65, that’s over 30 years in retirement. How well does $2 million stretch over 30 years? Well, if you plan to spend $100,000 a year, which isn’t a ton of money, especially if you want to travel, have high health care costs, and are still paying off a mortgage, then $2 million will last you about 20 years. (This calculation assumes a 5 percent rate of return in retirement and also makes assumptions about tax rates; you can play around with the numbers yourself using this calculator.) That means you’ll run out of money in your 80s.

The bottom line: Retirement is expensive. Continue saving as much as you can, and if possible, put money into after-tax accounts as well, so you can save more than the maximum allowed 401(k) contribution limits.

See What If The Stock Market Never Goes Up Again?

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