I am asked quite frequently how much you should have in your 401(k) when you retire. The real question is how much will I need to have to withdraw a certain amount of income from the plan when they retire.
These seem like the same question, at least on the surface. Determining your eventual distribution from your plan depends on how much is in your plan.
The problem lies in an unknown future filled with financial events that are largely beyond your control. We can’t predict inflation. It could be mild as it is currently or it could skyrocket. We can’t predict taxes.
They could remain stable and if the popular theory of being taxed less in retirement holds any validity, we can make educated guesses as to what that rate will be – but not much more. We can’t predict the markets. We tend to be an optimistic sort projecting past historic returns as a measure of future results.
So if inflation doesn’t cooperate and taxes could rise and the markets continue to be volatile, where does that leave us? And with what controls?
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Paul Petillo is the managing editor of Target2025.com and BlueCollarDollar.com