Why Your 401(k) Alone May Not Be Enough to Live Comfortably in Retirement

Thanks to factors like inflation, the amount of money needed to retire comfortably and securely has steadily increased through the years. Luckily, for many people, they have access to a 401(k) plan that helps them save for retirement and invest those savings.

Unfortunately, a 401(k) alone may not be enough to live comfortably in retirement.

Image source: Getty Images.

Rules of thumb for retirement savings

There’s no one-size-fits-all answer for how much money you should have to retire — different people with different lifestyles will inevitably have different needs. However, a good principle to follow is the 80% rule, which recommends having at least 80% of your pre-retirement annual income available to maintain your current lifestyle in retirement.

While the 80% rule offers guidance on the annual retirement income you may need, to be further prepared, you can also incorporate the 4% rule. This rule states that in retirement, you should plan to withdraw 4% of your retirement savings each year (adjusting for inflation) to avoid outliving your savings for at least 30 years.

To quickly put the 4% rule into action, multiply your annual income needed in retirement (based on the 80% rule) by 25. For example, if your pre-retirement income is $150,000 — which means you’ll need $120,000 in retirement — you would ideally have $3 million saved.

How much can you save from a 401(k) plan?

For tax year 2022, the maximum contribution allowed for 401(k) plans is $20,500 ($27,000 if you’re 50 or older). If the IRS decided to keep the 401(k) contribution limit the same, it would take more than 48 years of basic saving to reach $1 million. Considering the Social Security Administration sets the full retirement age at about 67 years old, this means you’d have to max out your 401(k) from age 19 to retirement — something highly unlikely to happen.

But if your 401(k) account were to return 8% annually (including any plan fees), here’s how much you’d roughly have saved if you were to max out your contributions for various periods, thanks to compounding earnings.

Years Making Max Contributions
Amount Saved



$1.49 million


$2.32 million


$3.53 million

Data source: Author calculations.

If your ideal retirement savings goal is $3 million like in the example above, it would be difficult to achieve that from your 401(k) alone unless you maxed out your contributions for more than 33 years.

Use a Roth IRA to supplement your 401(k)

Like a 401(k), a Roth IRA is popular for retirement savings, but one key difference between the two is that you contribute after-tax money to a Roth IRA. This means your contributions get to grow tax-free.

Roth IRAs are similar to regular brokerage accounts when it comes to available investment options, whether it’s a single company’s stock or an exchange-traded fund. You often don’t have that level of choice with a 401(k), because your employer sets the menu of investment options for you. Considering that a 401(k) plan alone may not be enough to live on comfortably in retirement, you should consider opening and making regular contributions to a Roth IRA to supplement your retirement savings.

Even if you only invested $300 monthly into an S&P 500-based index fund — which historically returns about 10% annually — you will have earned over $600,000 in 30 years.

One of the best things you can do for yourself is to make sure you’ll be financially stable in retirement, and taking advantage of the benefits of various retirement accounts (and the tax breaks that come with them) is an excellent way to do that.

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