by Harley Miller
The current full retirement age is 67 years old, up from 65 years old, and with this change came many questions from people across the country.
When we think about retirement, we wonder how we’re going to survive financially, what kind of investments we will need to make to prepare for that time to come, and so forth. One of the most popular investment opportunities discussed among corporate America is the 401K retirement savings plan. This plan lets you invest a portion of each paycheck before taxes are deducted, depending on the type of contributions made. Because of 401K tax advantages, the federal government imposes some restrictions about when you can withdraw your 401K contributions.
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The simplest way to understand this contribution savings plan is that if you borrow money before the age of 59.5, you will be subjected to a 10% penalty on top of income tax, and in some cases, your employer may or may not match your contributions. For those under the age of 50, the annual employee contribution limit is $22,500 as of 2023 and $23,000 in 2024.
But let’s say your employer does not match this, and you started your 401K savings plan at 30 years old, this leaves you with 29 years to contribute. All in all, you should have around $667,000 saved for retirement. But guess what, you’re single… so, this places you in the 37% tax tier, meaning you can expect to pay around $246,790 to the government, and this is all without an employer matching your contributions. This leaves you to retire with $420,210, and this is only if you consistently contribute to the account for 29 consecutive years.
