What percentage of career earnings should my 401K balance reflect? (rate, increase)
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So I've done a quick estimation of my career earnings with my employer over the past 20 years, and I've determined that my 401K balance reflects about 25% of my earnings over this period of time.
Is there any benchmark for what someone should have in their 401K balance, percentage wise, versus their earnings over the time contributing? I plan on working 10 more years with this employer. I'm thinking 25% is pretty good.
And over this time period of 1994-2014 I in no way contributed this much income. It reflects the market doing very well and averaging over 10% increase yearly on the balance.
Sounds reasonable to me, though it would depend on how much of your contributions were earlier vs. more recent. The dollars put in earlier would have more time to grow than those more recently contributed.
I agree with Mr. Rational that this is an odd metric to use. A better one to use for retirement is that you generally need 25X your spending level for retirement. Some people say 33X. Now, if you are going to count things such as Social Security, pensions, or inheritances, then you may not need that much. But 25X your spending level generally means you can walk away from your job and take out 4% initially and adjust upward for inflation every year without having to worry too much. You'll still need an equity heavy portfolio to pull this off (60% - 80%).
This article does a great job showing the relationship between after tax savings rate and the time it takes to hit financial independence.
even the 25x is questionable since what you can draw is based on the way you will allocate . anything based around drawing 4% inflation adjusted needs at least 35-40% in equities to stand a high rate of success.
also the yearly inflation adjusting figured in those numbers is rarely needed yearly reducing those savings numbers in many cases.
Last edited by mathjak107; 01-25-2015 at 05:57 AM..
even the 25x is questionable since what you can draw is based on the way you will allocate . anything based around drawing 4% inflation adjusted needs at least 35-40% in equities to stand a high rate of success.
also the yearly inflation adjusting figured in those numbers is rarely needed yearly reducing those savings numbers in many cases.
Yes, I agree 25X is still questionable, but it's a good number to shoot for. Most people will get something from Social Security, so that will act as a cushion. Also, I would recommend people be flexible with their withdrawals and not automatically adjust upward for inflation, especially the first few years.
Also, thanks for that link mysticaltyger, it's bookmarked for future reference.
You're welcome
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