Saving for retirement is one of the most important financial planning goals for most Americans. However, the question of how much you’ll need to retire is often quite personal and uncertain. Many American workers use a 401(k) plan to save for retirement. Figuring out how much you should have in your 401(k) to retire can be challenging. You’ll need to consider several factors: where you want to live, the lifestyle you expect, and your planned retirement age. If you have in-depth questions about your retirement plans, consider working with a local financial advisor.
What Is a 401(k)?
A 401(k) is a defined contribution retirement plan that many companies offer their employees. You put a portion of your paycheck into the plan, before taxes, and invest it in various mutual funds and other investments.
Your investments generate returns during your working years, growing your retirement savings. Then when you retire, you can start making withdrawals, though you’ll pay taxes when you withdraw funds. For reference, the 401(k) contribution limit for 2025 is $23,500 ($31,500 for people 50 and older). Starting in 2025, 401(k) participants between 60 and 63 can contribute up to $34,750, including an $11,250 super catch-up contribution.
Some companies offer 401(k) matching as well. This means you get extra money from your employer, based on how much you contribute. This is free money, so be sure to take full advantage if your company offers it. Matches are typically limited to a certain percentage of your annual salary, like 3%.
Your 401(k) Savings and Where You Want to Retire
Where you plan on spending your retirement will have a major impact on how much money you’ll need to save in your 401(k). A number of different factors fall under this bucket, each with its own impact on your savings needs. Cost of living is the most important factor after determining where you want to retire.
For example, retiring in Hawaii may seem like a tropical dream, but the cost of living in Hawaii is exceptionally high. If hitting the beach to surf in Oahu every day is something you really want, you’ll have to make sure you have enough money in your 401(k) to cover the cost of living.
Big cities like New York and Los Angeles also have predictably high costs of living. However, more remote places like Montana and New Hampshire have much lower costs of living, so you’d need less in your coffers if you opt to settle in places like that.
Another location-based retirement savings factor to keep in mind is taxes. Each state has its own tax codes, and some don’t have any income tax at all. Make sure you understand the tax policies of the state where you plan to retire so you have a sense of how much taxes will eat into your 401(k) savings over time.
For example, Texas does not charge any income taxes. That means when you withdraw funds from your 401(k) as a resident of Texas, you won’t have any state taxes taken out. On the flip side, though, Texas has exceptionally high property taxes. So if you plan on buying a sprawling ranch in the Lone Star State, you may face a high property tax bill.
Your 401(k) Savings and When You Want to Retire
When you retire is another factor in determining how much money you’ll need in your 401(k). Though the average retirement age has shifted throughout the years, most people still retire sometime in their 60s or 70s. Remember, though, that modern medicine means people are living longer. If you plan on being healthy until you’re in your 90s, retiring at 65 means you need enough money in your retirement account to survive another 25 years within whatever lifestyle you choose.
You might not know exactly when you want to retire, but you should try to have a general idea. If you work a relatively low-stress job, you might want to work a few more years to make some more cash. This would also mean you’ll have fewer years where you’re surviving solely off of retirement income. Just adjust your savings to match the general age at which you think you’ll retire.
SmartAsset’s retirement calculator can help you plan your retirement savings needs for specific ages and locations. Information you’ll need to run a calculation includes where you want to retire, your current annual income, your Social Security election age, your monthly savings, and a few other factors.
Your 401(k) Savings and Your Desired Retirement Lifestyle
How you want to live out your golden years is another huge factor in how much you’ll need in your 401(k) to retire. That’s because retirement has evolved over time to become a more active time of life. It’s now viewed as a new beginning in our lives rather than a beginning of our end. That shift in mindset has driven the need for additional sources of retirement income.
A Rand Corporation analysis of Americans’ spending habits shows that personal spending declines by an average of 1.7% per year after age 65 (2.4% per year for married couples). As a result, many retirement planning experts recommend replacing between 70% and 90% of your pre-retirement income.
If you have a household income of $100,000 when you retire and you use the 80% income replacement benchmark as your goal, you will need $80,000 a year to maintain your lifestyle. If your 401(k) grows at 8%, you could generate $80,000 a year in interest. This might reduce the need to dip into your principal.
What if your household income at retirement is $200,000 and you only have $1 million stashed away? Do you really only have half of what you will need to retire comfortably? Fortunately, a study by a group within the National Institutes of Health (NIH) found that roughly 80% of seniors owned their own homes. Of those, roughly 55% owned them free and clear of debt. The majority of the remainder had very little mortgage or home equity debt remaining.
How Much Money You Need to Retire vs. How Much You May Have
While everyone’s “magic number” is going to be different, it’s important to track your progress and compare your savings to your peers.
Fidelity Investments has guidelines to help retirement savers set age-based savings targets throughout their careers. Fidelity recommends that you have 1x your annual salary saved by age 30, 3x by age 40, 8x by age 60 and 10x by age 67.
Here’s a look at Fidelity’s savings targets, as well as both the median and average retirement savings according to Vanguard:
| Age | Median Wages/Earnings1 | Fidelity Savings Recommendation | Median Retirement Savings2 | Average Retirement Savings2 |
|---|---|---|---|---|
| 25–34 | $59,072 | 1x–2x annual salary | $14,933 | $37,557 |
| 35-44 | $70,512 | 3x annual salary | $35,537 | $91,281 |
| 45-54 | $69,472 | 4x–6x annual salary | $60,763 | $168,646 |
| 55-64 | $65,936 | 7x–8x annual salary | $87,571 | $244,750 |
| 65+ | $60,268 | 9x–10x annual salary | $88,488 | $272,588 |
2 Vanguard, “How America Saves,” 2022
As you can see, the average person in the U.S. doesn’t have the recommended amounts in their retirement account by each age milestone. If you fall into this category, then you may want to speak with a financial advisor to determine how you can get your account balance on track for the retirement plans you have in mind. Everyone’s situation is different but a financial advisor can help you evaluate whether your savings align with your goals.
Bottom Line
When figuring out how much money you’ll need in your 401(k) to retire, consider all factors. The most important is where and when you want to retire and what lifestyle you want to live. This will cover just about all of your possible expenses. However, it might also be smart to plan how many vacations you’ll take so you can account for those, too.
It’s important to start saving early in order to plan for retirement. This includes contributing as much as you can to your 401(k) each year. Try to contribute enough to qualify for your employer’s full matching contribution.
Tips for Getting Retirement Ready
- If you’re unsure of what your retirement plans should look like, a financial advisor can help you get things in order and answer all of your questions. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Don’t forget about Social Security. You’ll get a check from the government each month, which can help you get to your desired retirement income level. Find out how much you’ll get with our free Social Security calculator.
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