28 Jun How can I determine when I can afford to retire?

Q. My 401(k) has $375,000 and my IRAs have about $100,000. I’m 55 and I can’t afford to save anything above the 6% of my salary I do to get a 4% match from my employer for the 401(k). I’m trying to figure out when I can retire and for example what my savings will be worth. What’s a good way to project the right amounts?
— Planning

A. We’re glad you’re trying to figure it out. It will take some thinking and the answers aren’t the same for everyone.

What you need is largely based on what kind of lifestyle you will live in retirement.

“I like to start at expenses and work my way backwards,” said Matt Rembish, a certified financial planner with OneDigital in Boonton.

Start with monthly expense projections, he said.

You can break them out into non-negotiable (groceries, utilities, rent/mortgage, car) and negotiable (vacation, going out to eat, entertainment).

“Do a budget and track your expenses over a few months – you may even find some areas you are overspending which could lead to some savings opportunities,” Rembish said.

Once you know what your monthly need is, now you can figure where your income will come from.

Start with Social Security, and then see how big the gap is that you need your retirement savings to take care of, he said.

“A typical withdrawal rate is around 4%,” he said. “So, if you had $1 million in your investments, you would withdraw $40,000 a year.”

Rembish said there is no perfect way to project the right amounts because you cannot predict exactly what the market will do.

He said you can use a “future value calculator” online that can help you figure out what the value of your portfolio would be.

“The annual interest rate — account performance — will have the biggest effect on this number, so it’s important to have a reasonable number,” he said.

Also look at your asset allocation, or your investment mix.

“For example, if you were 60% stock/40% bonds, you can look online for the average return of that portfolio over the past 30 years to get a historical average,” he said. “Or you can look up what economists project a portfolio with your asset allocation mix will do over the next 10 or 20 years.”

Most individuals have a different tolerance to risk, but allocations should shift to more conservative investments the closer you get to retirement, Rembish said.

“If you wanted to retire in two years, and there was another 2008-esque market event, you wouldn’t be able to give your portfolio time to recover because you will need to take distributions soon,” he said.

Also log in to your 401(k) website to see what resources are there. Many of them have tools that will do this work for you.

Email your questions to .

This story was originally published in June 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.