How Long Will My 401k Last?

How Long Will My 401k Last?

If you are a salaried employee, then you would probably know about the 401k. For those who do not know about 401k, let us start by telling you what exactly is 401k. 401k is a retirement savings plan that comes with tax benefits. Almost every employer offers it, and 401k is the section’s name in the Internal Revenue Code. Employees can decide the deduction in their 401k, and the employers usually match it up by contributing an amount or a similar amount to it. It should be noted that the 401k plan will not be taxed until you withdraw that money.

The employee has the freedom to choose the type of investment in the 401k plan. The employer usually offers some of the options between which the employee can choose. Usually, the portfolio has stocks as well as bonds. During the selection, the employee decides the ratio of bonds and stocks to invest in the given proportion.

The contribution limit in 401k is $ 19,500 till the employee turns 50. Once the employee turns 50, he can contribute up to $ 26,000. Some of the employees offer a full employee matching in this portfolio. Withdrawing the 401k without penalties is next to impossible. In such a case, the employee’s general guidance is to contribute by keeping their savings aside. This way, the employee would not have to touch their 401k in case of any emergency. 

Withdrawals from 401k

So, the question is, when can you start withdrawal from 401k. The answer is simple. You can begin the withdrawal process as soon as you turn 59.5 years old. Apart from these criteria, you can also withdraw from 401k if you have a permanent disability. If you do not mean any of these criteria, then you will have to shed 10% of the withdrawals as a tax.

How Long Will My 401k Last?

Coming back to the main question, the answer is very subjective. You would need to manage your savings to ensure that your 401k can last throughout your retirement. It is generally a good idea to withdraw 4% or a maximum of 5% during the first year of your retirement. From there onwards, you can adjust your withdrawals as per the rise in inflation.

So your retirement age would govern how much is the total savings in the 401k. In addition to this, the returns you get will also define how much your savings will last. But doing simple math, we get a number of something between 25 to 35 years depending on how much you are withdrawing. If you have a total saving of $ 500,000 in your 401k, you will withdraw $20,000 in the first year. You can adjust this amount to inflation of approximately 2.5%. With such favorable rates, your savings can serve you for 30 years. 

Final Verdict

It will be wise to start early so that you have enough savings in 401k. Moreover, it is worth doing some research on the type of plan you are investing in. Lastly, you must never touch your 401k until and unless there is an immediate emergency. All these factors are a must to consider when you are young. 


I am Finance Content Writer . I write Personal Finance, banking, investment, and insurance related content for top clients including Kotak Mahindra Bank, Edelweiss, ICICI BANK and IDFC FIRST Bank. Linkedin

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