401(k) Savings Calculator
A 401(k) can be one of your best tools for creating a secure
retirement. It provides you with two important advantages. First,
all contributions and earnings to your 401(k) are tax-deferred. You
only pay taxes on contributions and earnings when the money is
withdrawn. Second, many employers provide matching contributions to
your 401(k) account which can range from 0% to
100% of your contributions. The combined
result is a retirement savings plan you cannot afford to pass
up.
Definitions
- Annual salary
- This is your annual salary from your employer before taxes and
other benefit deductions. Since your contribution and company match
are based on the salary paid to you by your employer, do not
include any income you may receive from sources other than your
employer.
- Percent to contribute
- This is the percentage of your annual salary you contribute to
your 401(k) plan each year. Most employers permit employees to
contribute up to 15% of their salary to a 401(k).
- Annual contribution limits
- Your total contribution for one year is based on your annual
salary times the percent you contribute. However, your annual
contribution is also subject to certain maximum total contributions
per year. The annual maximum for 2012 is $17,000. Starting at age
50 or older, a "catch-up" provision allows you to contribute an
additional $5,500 into your 401(k) account. It is also important to
note that employer contributions do not affect an employee's
maximum annual contribution limit.
It is important to note that some employees are subject to
another form of contribution limitations. Employees classified as
"Highly Compensated" may be subject to contribution limits based on
their employer's overall 401(k) participation. If you expect your
salary to be $115,000 or more in 2012 or was $115,000 or more in
2011, you may need to contact your employer to see if these
additional contribution limits apply to you.
- Current age
- Your current age.
- Age of retirement
- Age you wish to retire. This calculator assumes that the year
you retire, you do not make any contributions to your 401(k). So if
you retire at age 65, your last contribution happened when you were
actually 64.
- Current 401(k) balance
- The starting balance or current amount you have invested or
saved in your 401(k).
- Annual rate of return
- The annual rate of return for your 401(k) account. This
calculator assumes that your return is compounded annually and your
deposits are made monthly. The actual rate of return is largely
dependent on the type of investments you select. The S&P 500
for the ten years ending on December 31st, 2011 had an annual
compounded rate of return of 2.92%, including reinvestment of
dividends. From January 1970 through the end of 2011, the average
annual compounded rate of return for the S&P 500, including
reinvestment of dividends, was approximately 10.01% (source:
www.standardandpoors.com). Since 1970, the highest 12-month return
was 61% (June 1982 through June 1983). The lowest 12-month return
was -43% (March 2008 to March 2009). Savings accounts at a bank may
pay as little as 0.25% or less but carry significantly lower risk
of loss of principal balances.
It is important to remember that these scenarios are
hypothetical and that future rates of return can't be predicted
with certainty and that investments that pay higher rates of return
are generally subject to higher risk and volatility. The actual
rate of return on investments can vary widely over time, especially
for long-term investments. This includes the potential loss of
principal on your investment. It is not possible to invest directly
in an index and the compounded rate of return noted above does not
reflect sales charges and other fees that funds and/or investment
companies may charge.
- Annual salary increase
- The annual percentage you expect your salary to increase. We
assume that your salary will continue to increase at this rate
until you retire.
- Employer match
- An employer match is in addition to your annual contributions.
It is based on a percentage of your annual
contributions. This range can be anywhere from 0% to 100%.
For example, let's assume the employer matches 50% of the
employee's contributions up to 6% of their salary. The employee
earns $100,000 per year and contributes 10%. The results would
be:
- $10,000 from the employee
- $3,000 from the employer (which is 50% of $6,000 or 6% of the
annual salary)
- Total: $13,000
Please read the definition for "Employer maximum" for a detailed
description of maximum employer matching contributions. It is also
important to note employer contributions do not affect the maximum
amount allowed to be contributed by an employee. Matching
contributions can be subject to a vesting schedule. See your plan
information for details.
- Employer maximum
- This is the maximum percent of your salary matched by your
employer regardless of the amount you decide to contribute. For
example, let's assume your employer has a 50% match, up to a
maximum of 6% of your annual salary. If you have an annual salary
of $25,000 and contribute 6%, your annual contribution is $1,500.
With a 50% match, your employer will add another $750 to your
401(k) account. If you increase your contribution to 10%, your
annual contribution is $2,500 per year. Your employer match,
however, is limited to the first 6% of your salary and remains at
$750.
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