When it comes to retirement savings, it’s never a bad idea to be proactive and reassess your current contributions, especially if you are wondering whether you are in good shape to “coast” for the remainder of your working years. While a 15% contribution from you and an additional 8% from your employer is a good start, it is important to take various factors into account to determine whether you are on track to meet your retirement goals. In this article, we will discuss the significance of retirement contributions, the impact of compound interest, and other key considerations to ensure a financially secure retirement.
To grasp the importance of retirement contributions, it is essential to understand the power of compound interest. Compound interest refers to the process of earning interest on both the initial investment and the accumulated interest over time. By consistently contributing to your retirement accounts, you not only increase your principal investment but also benefit from the compounding effect. The earlier you start contributing, the longer your contributions have to grow and take advantage of compound interest.
While contributing 15% to your retirement is commendable, it’s important to evaluate whether it aligns with your retirement goals and desired lifestyle in the future. A good practice is to use retirement calculators or consult with a financial advisor to estimate the amount you would need to save for a comfortable retirement. These tools take into consideration factors such as your current age, desired retirement age, expected future income, lifestyle expenses, inflation, and investment returns.
Additionally, take some time to review your retirement plan’s investment options. Are you contributing to a 401(k), individual retirement account (IRA), or a similar retirement vehicle? Understanding the investment options available to you can help you make informed decisions about asset allocation and the potential for growth. You may want to consider diversifying your investments to manage risk and take advantage of varying market conditions.
It’s also crucial to assess the investment performance of your retirement accounts periodically. While past performance doesn’t guarantee future success, monitoring the performance of your investments can help you identify any adjustments or reassessments necessary. Consider rebalancing your investment portfolio periodically to ensure it aligns with your risk tolerance and retirement goals.
Beyond contributions and investment performance, evaluating your retirement income sources is vital. While your employer’s contribution is a significant boost to your retirement savings, it is not the only potential income source. Social Security benefits, if applicable, should also be factored into your retirement planning. Understanding when and how to maximize these benefits can have a significant impact on your overall retirement income.
It is also worth noting that unexpected expenses, inflation, and changes in the economic landscape can all impact your retirement savings. To mitigate these risks, consider establishing an emergency fund to cover any unforeseen expenses. Adequate insurance coverage, including health insurance and long-term care insurance, can also provide protection and peace of mind.
In summary, while contributing 15% to your retirement and receiving an 8% employer contribution is a good start, it is essential to assess whether it aligns with your retirement goals. By understanding the power of compound interest, reviewing your investment options, monitoring performance, and accounting for other sources of retirement income, you can better position yourself for a financially secure retirement. Regular reassessments, informed decision-making, and seeking professional advice when necessary can significantly contribute to your retirement success. So, rather than coasting, it pays to remain diligent and proactive in securing your financial future.
Sounds like a good start if you are a high earner. You need to also save in post tax accounts like Roth IRA.
When you withdraw the 401k money it is taxed just like the income you get in your paycheck today. If you can supplement that taxable 401k money in retirement with a non-tax source like Roth it will lower your tax bracket so you pay a lower percentage by being ina lower tax bracket.
Because I can without impacting lifestyle, I hit the federal max for 401k contributions every year. But I’m debt free, including my mortgage.
need exact numbers or expected spending
the issue with percentage is 2-fold
#1 dumping 15% of a $50k/year TC job is totally different vs. dumping 15% of a $500k/year TC job
#2 the implicit assumption is “to maintain your current lifestyle preference” which may or may not hold true for your actual retirement (for example, lets say you pay $3k/month on rent today vs. you expect to pay maybe $1k/month by moving away after you retire) so the numbers could also be totally different
I would still try to save as much as possible unless I was going to do something with the money where it needed to be accessible outside a retirement account. For me, I would rather beef up my retirement when I don’t really need the money in case something unexpected happens to my job in the future. I also think of retirement accounts as a way to protect my money from bankruptcy in the off chance I need it. The more money inside a retirement account the better.
Your definition of coast and my definition of coast is different. Investing 24% is a huge deal and if you’re able to do that, yes, you’ll be fine and can …. “coast”. To me, you are doing a fantastic job. That’s a difficult number for me to achieve.
Additionally, if you made ~$150k, coasting at 15% is maxing your 401k. Great job, OP. Keep it up.
Need more info.
As a basic guideline seems fine.
But are you behind in retirement savings for your age bracket?
Many FA do not count employer contributions in the suggested retirement savings.
My employer gives us 10% but I don’t count it in my personal savings rates.
Also depends on your goals. Especially for the future. Retire early? You’ll want to pump those rookie numbers up lol. Retire modestly, then sure maybe you’re ok. Age plays into it. Debt. House paid off or not. Health. A lot to be answered to know if you can coast.
Personally, I would max the 401k, if you can handle it financially. Every dollar I contribute is an immediate 22% savings on taxes.
I think you should be maxing out your 401k unless you have just a crystal clear idea of what you’re going to be doing with the money.
Without real numbers we don’t know. You have a maxed Roth IRA, a HSA, and a 401k
Age? UnknownReal Dollar amount? unknown
Years to retire? Unknown
What are you invested in? Unknown
But, at 24% based on everything else you told us, sure. With 10 caveats.
If you can afford to contribute the dollar maximum, do it. Percentages are important to get the match but the bottom line is $22,500 is the number you want to aim for.
Work backwards.
Planned retirement age? Annual expected spending including Heathcare & emergency fund.
Does your current balance & planned savings meet projected needs?
People are getting pretty technical on here. But I’d say **yes, 24% is plenty for nearly everyone to be able to have a comfortable retirement.**
Chill and relax. The idea of a 30-year-old planning out what their expenses/spending will be in retirement 4 decades from now is pointless.
That said, I’m assuming you are a fairly typical person who starts work no later than age 30 or so and plans to retire at 60+. This assumes you don’t have an extended family of 15 people who you intend to support in old age. Buy yeah, you’re fine. Worry about other things. 🙂
Percentages don’t matter one bit… I contribute 5% and max out the IRS limit every year…. This is the important part… if you are making out your commitment than you are on the right road; however, I wouldn’t limit retirement to a 401k, Social Security and luck.
If you’re 63, you want to retire at 65, you spend 6 figures a year, you have 10% equity in your house, you still have 2 kids at home, you have $23,500 saved for retirement, and you wife is 31 and doesn’t work…..I’d say no.
Keep contributing. Don’t ever stop. You would be surprised how much money you will need later. No coasting. Most people want to continue to live a lifestyle based on their full income. So at 6 figures now, plan your spending to match what income you will have later and you will be happy with the savings.
Wife and I built our budget 5 years ago based on what our retirement income will be. Imagine having the 6 figure income one day, retiring and income drops significantly as current SS pays x dollars which is way below 6 figures. We had over 220k income when we both worked. I retired early due to health. We still make over 6 figures but live like we are on SS so we won’t be surprised. Saved almost 400k in three years
Once you have maxed out your retirement options (401k and IRA +- HSA) I would say you could coast… but at that point you would then want to automate investing into a brokerage account until you are left with a monthly amount that is comfortable for your daily life.