The 401(k) plan is one of the best savings vehicles you can use to help you retire comfortably.
But before you start investing in a 401(k) plan, you need to figure out a few things:
- How much you need to save for retirement
- How long you need to save for
- How much of your salary you need to tuck away each year
You can use a 401(k) calculator to help.
What is a 401(k) plan?
This employer-sponsored retirement savings plan allows you to invest part of your paycheck before the government takes its taxes.
The plan gives you control over your investments, which typically include a mix of mutual funds made up of stocks, bonds, and money market investments.
And you get control over how much you want to invest in the plan from your paycheck, as long as you don’t go over contribution limits imposed by the IRS.
These plans are popular retirement savings vehicles for a few reasons:
- Your contributions grow tax deferred until you withdraw them. You won’t pay taxes until you make withdrawals in retirement.
- You have control over what you want to invest in and how much you want to invest from your paycheck, as long as you follow the IRS’s rules.
- If you get a job with a new employer, you can transfer your savings into a new 401(k) penalty-free.
And finally, your employer may choose to match part of your contributions, putting more money into your 401(k) — the IRS doesn’t count employer contributions toward its contribution limits.
The 401(k) calculator
The 401(k) calculator can help you meet your retirement savings goals by showing you how much you need to invest from your salary and how long you need to invest against factors such as the annual rate of return on your investments and how much your employer contributes.
Click here to use a 401(k) calculator from AARP.
To use the AARP calculator, start by putting your annual salary amount, current age, and desired retirement age into their respective fields. Then put the starting balance of your 401(k), the annual rate of return on your investments, and the percentage of your salary you’d like to contribute to your 401(k) in their respective fields.
Finally, you’ll need to put the percentage of your annual salary increase, the percentage of your contributions your employer will match, and the maximum percentage of your annual salary your employer will match into their respective fields.
The calculator will then determine how much your 401(k) will save by the time you retire and offer a report to view or print for your reference.
The bottom line
Saving for retirement is too important to just guess how much you’ll need. The AARP calculator is easy to use and offers reliable and instantaneous data for your reference at any time. To learn more about other retirement savings vehicles and their savings calculators, head over to this post.
