Is your 401 (k) sufficient for retirement? | Personal finance
If you can afford that contribution, your 401 (k) can still handle the job. You would be well within the IRS’s maximum annual contribution limit. In 2021, for example, anyone under the age of 50 can contribute up to $ 19,500 to a 401 (k), or $ 58,000 including employer contributions.
When your 401 (k) isn’t enough
Your 401 (k) can fail if you’ve already celebrated your 50th birthday without too much savings to show. The challenge you will face is this annual contribution limit. After your 50th birthday, you can make catch-up contributions, which will help you. In 2021, the catch-up contributions are $ 6,500. This increases your contribution limit to $ 26,000 per year.
While $ 26,000 seems like a lot to save in a year, it is often not enough for older savers. Two factors work against you after 50 years. First, the investment schedule is very short, which limits your earning potential. And second, as you approach retirement, you need to start insulating your wealth from normal market volatility.
Let’s say you earn an average salary of $ 60,000 at age 50 and your employer equates to 5%, or $ 3,000. With your maximum contribution of $ 26,000, you save $ 29,000 per year in total, or approximately $ 2,400 per month. This monthly contribution would increase to about $ 676,000 after 15 years – if you can maintain that 6% growth rate.