Is Your 401(k) Enough for Retirement? | Personal Finance


In 2021, the IRS limits employee contributions to 401(k)s to $19,500 per year. If you’re able to save that much annually, retiring with just a 401(k) is more than doable. Contributing $19,500 annually to a 401(k) (assuming an 8% rate of return) would leave you with about $2.4 million after 30 years of work. While that amount would be more than enough to retire for most, whether or not it’s enough really comes down to your personal needs.

Needless to say, saving that much for 30 years is challenging. With that said, you could at least try to contribute to your 401(k) up to the employer match for as long as possible. Even if you don’t hit the millions in your 401(k), you’ll be in a significantly better position than if you had done little or nothing.

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Why it might not be

First, taxes. When you contribute to a 401(k), you’re getting a tax deduction today, but this doesn’t come without a catch. You won’t pay anything in taxes today, but you will be liable for taxes when you withdraw the money in retirement. If tax rates rise generally — and many signs point to just that — you might end up paying a higher tax rate in retirement than you would have if you had chosen to pay tax today. That said, this is incredibly difficult to predict.

Because we don’t know what’s going to happen to tax rates in the future, it might pay to consider other types of accounts with different tax treatments — like a Roth IRA or even an HSA — to hedge against future changes in tax rates. If you have money growing in a Roth IRA and a fully or partially funded 401(k), you’re prepared for whatever happens to taxes in the future.


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