How to calculate the percentage of contributing to a 401K
When you have the opti
on of participating in a 401k, determining how much you contribute to it on a regular basis can be difficult. Most employers offer the option to take the money directly from their paycheck and percentage of contributing to a 401K. To determine what percentage of your income to contribute to the account, you must do some calculations and evaluate your personal needs for retirement. If you do not contribute a large enough percentage, you may not be able to enjoy a comfortable retirement.
Calculate the percentage
Calculate the amount of money you need to live during your retirement. You can use one of the many online retirement calculators to help you do this or work with your personal financial advisor. Determine roughly the amount of money needed for housing, entertainment, food, medical care, transportation and any other expenses you can imagine.
Enter the amount you need in a retirement calculator. Enter an average rate of return on the investments you are going to put your money in. For example, 8 percent is an average long-term rate of return that you can truly expect to achieve. Input other variables that the calculator needs, such as your desired retirement age.
Use the calculator to determine how much you need to save each year to reach your goals at that rate.
Divide the amount of money you need to save per year by the number of checks you receive in a year. If you are paid weekly, the total is divided by 52.
Take the total that should be saved per pay period and divide that by the total amount you earn during that period. For example, if you need to save $ 100 per week and you will earn $ 800 per week, you would take $ 100 and divide by $ 800. This gives you a percentage of the 12.5 percent of your income you need to save.
Tips & Warnings
Many employers also contribute money to your 401k. In calculating what you need for retirement, it often works best if you do not make plans for the employer’s equivalent contributions. Employers are not required to contribute money to your account, so any money you receive from this is an advantage.
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