- - I’m 45 years old and I’d like to retire in 20 years — I earn $50K a year and have about $200K stashed in my 401(k). Am I on track?

Will KentonNovember 7, 2025 at 11:00 PM

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To figure this out, let's get into the numbers.

The thought of retirement tends to stress a lot of us out. In addition to the mentally exhausting habit of comparing yourself to others, you are also comparing yourself to your future self, who you likely want to be richer and more comfortable than you are now.

It’s tempting to put a number on how much money you think you need and multiply it arbitrarily to come up with a total that you hope will feel right in 20 years, but there are many unknowns about your future lifestyle, health, taxes and where you want to live that will likely shape your retirement number.

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That's why the first step is not exactly a calculator, but deciding what “comfortable” looks like for you. Imagine John, for example, a 45-year-old American who has $200,000 saved in a 401(k). He makes just north of $50,000 a year and wants to be able to retire at 65. It’s important to note that John is unmarried and doesn’t plan on marrying. He also has no children.

So, how much money will he need to retire comfortably? The U.S. Department of Labor suggests a common starting point of replacing about 80% of your pre-retirement income, but notes that your true goal depends on the life you want to live in retirement. (1)

Finding a ‘comfortable’ number

In figuring out his number, John should start by asking himself a few practical questions. What do I plan to spend in retirement and how will that change over time? Will I travel more? Will I downsize my living arrangements? What is my health outlook, and how much will I budget for Medicare and out-of-pocket health care? Do I want to completely retire at 65 or maybe work part time?

The Labor Department’s retirement planning guide walks through these trade-offs and encourages Americans like John to check their Social Security estimate through their my Social Security account to see how different claiming ages change their benefit. But sometimes, comfort comes from an easily definable goal.

Fortunately, there are several “rules of thumb” that retirement planners have developed over the years to provide a benchmark for your preparedness. The “final multiple” number comes from multiplying your income at retirement by 10 to 12. Age-based pacing guides recommend having about your annual salary saved at 30, and three times your income by the age of 40. Fortunately for John, he has four times his annual salary already in the bank.

Finally, there is the safe withdrawal rate, also known as the 4% rule, which says you can withdraw 4% of your retirement funds every year for 25 years before you run out or money.

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Running the numbers

Assuming John’s pay grows 2% every year, his investments earn 6% a year before fees and taxes, and he saves 6% of his salary per year with a 3% employer match, John’s 401(k) could reach about $804,607 by 65. If he saves 10% of his salary per year with a 3% match, it could reach about $911,786.

Those totals line up with the “10 to 12 times income” yardstick because a $50,000 salary that grows 2% annually would be about $74,000 at 65, which implies a target of roughly $740,000 to $890,000 saved for retirement.

Using the 4% rule, that means John’s annual income in the first year of retirement will be around $32,184. Saving at the 10% rate increases his retirement income to $36,471 in the first year. If John applies for Social Security when he turns 65, he won’t get his full benefit because the full retirement age for those born after 1960 is 67 years old. Instead, he will get 86.7% of his full benefit, which would come out to around $21,204 per year.

Combining a 4% starting withdrawal rate with a $21,204 Social Security estimate, John will have around $53,388 in yearly income at his 6% savings rate, and $57,675 at his 10% savings rate. The Labor Department’s 80% rule — replacing 80% of your final income in retirement — points to roughly $40,000 a year for someone earning $50,000 today, so these scenarios clear that bar on paper.

But since John's salary will likely rise to around $74,000 by the time he retires, he stands to take a financial hit, based on the Department of Labor's 80% model. Taxes, health costs, debt and market returns will move the target up or down, so John should treat these figures as planning ranges.

Of course, things change and nothing is set in stone. The Social Security Administration’s actuaries show “payable” benefits will be lower if Congress makes no changes after trust-fund depletion around 2035 (2), so planners should model both a full benefit and a reduced-benefit case. Second, your withdrawal rate should adapt to markets and longevity, which means the 4% figure should only be a starting point.

If John continues to save 6%-10% of his salary with a modest match, his numbers suggest there’s a path to a comfortable retirement at 65, especially when he adds his Social Security benefits to the mix. But a lot can change in the next 20 years, and John's retirement number likely depends on the kind of life he wants to live once he's called it a career.

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Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

U.S. Department of Labor (1); CNBC (2)

This article originally appeared on Moneywise.com under the title: I’m 45 and I'd like to retire in 20 years — I earn $50K a year and have about $200K saved in a 401(k). Am I on track?

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Original Article on Source

Source: “AOL Money”