Definitions

Not sure what to type in? Here’s how to fill in each field in the financial calculator.

Annual Income

Annual income is how much money you make per year. The calculator uses your gross annual salary, meaning your total salary before taxes, because your 401(k) contributions are taken out of your paycheck before you’re taxed on that money.

That’s why a 401(k) is known as a tax-deferred account. You don’t pay taxes to the IRS on those contributions until later, when you start withdrawing the funds.

Percent to Invest

Percent to invest is the percent of your annual salary you’re investing in your 401(k).

For the calculator, only enter your employee contributions in the Percent to Invest field. Employer contributions are included under Company Match, below.

If you’re not sure how much you should invest, jump down to the question “How much should I be saving for retirement in my 401(k)?”

Expected Annual Return

Expected Annual Return is the percentage you expect to earn on your investments each year. Because annual investment returns fluctuate, you might want to run the calculator a few times to see different scenarios.

Your average annual rate of return may also drop as you approach retirement and shift toward more conservative investments. That’s okay. Just estimate an average for this field.

Company Match

Does your employer match your 401(k) contributions up to a certain percentage? Company Match is for those matching contributions.

This is essentially free money your employer is willing to give you above and beyond your annual salary. Try to contribute enough to your 401(k) to max out those matching funds so you’re not leaving that extra money on the table.

Your Age

Your Age is your current age today.

Expected Retirement Age

Expected Retirement Age is the age you expect to be when you retire.

If you aren’t sure, keep in mind that your Social Security benefits won’t reach their maximum unless you’re at least 67 years old when you retire. (If you were born before 1961, you can claim maximum benefits at age 66.)

Important information about your 401(k)

Tax implications

One of the biggest tax benefits of a 401(k) is that you don’t have to pay taxes on your 401(k) contributions until later.

Here’s an example. Let’s say you make $100,000 per year. If you contribute $20,000 to your 401(k) this year, the IRS essentially ignores that tax-deductible amount, and you only pay taxes as if you made $80,000 instead of $100,000.

In other words, that $20,000 is tax-free, at least for now.

You’ll pay income tax on that money eventually when you start withdrawing from your account, but those withdrawals will be taxed as ordinary income. If you’re in a lower tax bracket during retirement than you were when you were working, you’ll still be saving money.

The more your salary increases today, the more tax savings you could potentially realize by deferring your taxes through your 401(k) contributions.

How much should I be saving for retirement in my 401(k)?

How much you should be saving in your 401(k) depends on several other factors. Why? Because it’s best to treat your finances as a whole. For example:

• How much will your employer match? When deciding how much of your annual salary to save in your 401(k), maxing out your employer's matching funds is a good place to start. If you’re not sure what that number is, ask your human resources department.
• Do you have other priorities for your disposable income? Even if you’re not maxing out your employer match, you might have other needs that are more important right now. The key is to look at your 401(k) as part of your complete financial picture.
• Are you hitting your annual contribution limits? If you’re doing all you can with your 401(k), it’s time to branch out into other opportunities to grow your net worth.
• Will you make more money now or later? If you’re making a lot now and expect to live on less during retirement, then a tax-deferred 401(k) makes sense because you’ll be in a lower tax bracket later. But if you expect your income to keep growing over time, a Roth IRA might be better for you once you reach your employer’s maximum match.

Fortunately, there are tools that can make this kind of financial planning easier. If you want to take control of your finances—and your retirement plan—a personal finance app like Quicken or Simplifi by Quicken lets you track and manage all your accounts in one place.

It even offers a lifetime planner to walk you step by step through all the right questions.

Rules regarding withdrawals

Whether you’re 27 or 72, there are rules for withdrawals when it comes to your retirement accounts.

Generally speaking, you may withdraw from your 401(k) upon reaching the age of 59 ½. Any withdrawals made before this age are referred to as premature (or early) distributions, and (with a few exceptions) will be subject to an early withdrawal penalty of 10%.

Once you reach 73 years of age, you’ll have to start making required minimum distributions, also known as RMDs. Your RMD is the yearly amount you’re obligated to withdraw from your 401(k), and it will be taxed as regular income (unless your account is set up as a Roth 401(k)).

The amount for your RMDs can vary substantially because they’re based on the fair market value of your account divided by a life expectancy factor — you can find a calculator to estimate your RMD here.

Other types of retirement accounts

There are plenty of additional types of retirement accounts along with 401(k)’s. Several other common types include:

• IRA
• Roth IRA
• Savings accounts
• Mutual funds
• Private brokerage accounts

Each offers a different avenue toward saving for your retirement. Be sure to consult a financial advisor about your investment options when it comes to your retirement savings plan.

Will you have enough to retire?

One of the most common questions about retiring is, “Will I have enough money?” It’s definitely a valid question and a good one to be asking! Remember, your 401(k) is just one part of a comprehensive retirement plan — you’ll need more inputs to make sure you’re not struggling to get by.

Try our more robust retirement calculator to take these into consideration.

In conjunction with your 401(k), you could also have one or more of those other account options — talk to your financial advisor and see where else you could contribute. Don’t forget that Americans over 67 are entitled to full Social Security benefits, which you can also use to supplement your retirement income.

Don’t lose sight of the fact that retirement is time for you — if you’ve ever wanted to start your own small business, get into renting properties, or even spend a few days working part-time, you can set yourself up with recurring income well into your retirement.

Calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to utilize our Quicken software for personalized finance summaries.

Sources:

Life expectancy data: http://www.cdc.gov/nchs/fastats/life-expectancy.htm

US minimum wage: https://aspe.hhs.gov/2015-poverty-guidelines#threshholds

Future Value: http://www.accountingcoach.com/future-value-of-a-single-amount/explanation/4