How Much Should You Contribute to Retirement and When?
- Brian Walsh
- Jun 21, 2024
- 3 min read

At the bottom is a link to the article that breaks out the average and median. The average is a bad way to judge because the high savers offset the low savers, whereas the median shows where most people end up. Here is a table from the article.
If you are in your 40s...the average is $344K, but most are at about $151K or less. That is a pretty big gap and probably not going to cover your retirement needs someday.
So what do you need, what could you have, and what should you do?
If you are banking on social security, I have news for you, the average check is a measly $1778 a month or $21,000 per year, which is less than someone working for $15 an hour, 40 hours a week all year ($31,200). So safe to say that is below the retirement level. Chances are you need more than 21K per year, which is where retirement comes in. Assuming you do not have a pension (since most do not), you are not going to pull from your 401K, which is making on average about 10% per year (note, some years are down).
Standard guidance says you can safely pull about 4-6% out of that and then adjust for inflation a bit each year (give yourself a raise). By doing that your money should last about 30 years at 4%. On a 1 million dollar portfolio, you are going to pull $40,000 out and then add about 2-3% to that each year, making year 2, $40,800, then 41,600, and so on and you should then run out of money about 30 years after retirement. NOTE: Your total income is now $21,000 from social security and $40,000 from your investments, bringing your retirement up to $61,000 in year 1, on a $1 million portfolio. Go back to our numbers and if you take the median, you are only going to be able to pull about $6,000 per year to make that $151,000 last for 30 years, still leaving you below the $15/hour employee.
How much should you save? First, you have to know how much are you going to spend in retirement. I assume your expenses are going to go down for one, no kids, and hopefully no debt. Then multiply that by 12 to figure out what you are going to need for the year. Also, do you plan to work at all? Many will work at least part-time in retirement to keep the brain engaged and stay active, so factor this into your equation as you are allowed to work.
In summary, most people are behind on retirement planning! If you are looking at these numbers and thinking the same thing, you are not alone, so what do you do you do?
Pay off Debts and live below your means. Less debt means fewer payments and more available to invest.
Start investing at least 15% into retirement
Pay off your house, that is probably the largest line item in your budget. Taking that expense away can help you increase your investments.
Know your expenses and plan for the future, how much will you need?
Remember the best time to plant a tree was 100 years ago, but the next best time is right now. Let this be the motivation you need to get your finances under control and start planning. Don't wait until you are in your 40s/50s to start thinking about retirement, start now. If you start investing just $200 a month from the time you start working until 65 you will have $1.2 Million in retirement. Over 40 years, you will have invested just $96,000 and earned over $1.1 Million in interest!
NOW, if you are hitting the maximum in your 401K of $22,500 for just 20 years ($1,875 per month), from age 45 to 65 you will have $1.4 million in retirement! GET after it, follow those easy steps above, and start thinking about what your future could be.
Some good reading on the 4% rule
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