The Average Monthly Social Security Check Is $2,086. Here’s the 401(k) Balance You’d Need to Match It

Workers are often told not to retire on Social Security alone. But many people don’t manage to save much for retirement and become heavily reliant on Social Security once their careers come to an end.

The average monthly Social Security benefit today is $2,086. On an annual basis, that’s only about $25,000, which is clearly not a lot of money to live on.

But what if you could somehow withdraw enough from your 401(k) plan to match that $25,000 annual Social Security benefit? You’d then be looking at an annual retirement income of $50,000, which paints a much rosier picture. If you like the sound of that, here’s the 401(k) balance required to safely withdraw $25,000 a year.

The 401(k) balance that could lead to more financial freedom in retirement

To see how much 401(k) savings you need to withdraw $25,000 a year, we first need to establish a safe withdrawal rate. Financial experts tend to like the 4% rule because it’s been tested across years of market returns and scenarios. If we use that logic, it means we’ll withdraw 4% per year.

To get $25,000 a year out of your savings, you’ll need a 401(k) balance of $625,000. And while that might seem very difficult to attain, if you start saving early in your career, it may be more doable than expected.

See, when you have a long savings window, you can generally afford to load up on stocks despite the risks involved. Even if there are market downturns, with a long career ahead of you, there’s time to ride out those bumps.

Now, let’s say you begin saving $200 a month in a 401(k) at age 25 and continue doing so until age 65. If your 401(k) gives you a yearly 8% return, which is a bit below the stock market’s average, after 40 years, your balance could be about $625,000. That means you’d be in a great position to get $25,000 a year from savings.

Now one thing to keep in mind is that the numbers above are only an illustration. The stock market doesn’t necessarily gain value in a steady or linear fashion.

The point, however, is that funding a 401(k) early and staying consistent over many years could lead to a large balance by the time retirement rolls around, especially if you’re disciplined and don’t touch your savings early.

Make sure you can supplement your Social Security nicely

If you’re in line for Social Security’s average benefit or expect to be in the future, having enough savings to match it could set you up for a comfortable retirement. But if that’s your goal, the key is to start saving early on.

Giving your money time to grow is one of the most important things you can do in the course of building long-term wealth. So as difficult as it may be, try getting into the habit of funding a 401(k) as soon as you begin working, even if you still have student loans, credit card debt, and other expenses to manage. It’s a decision that could pay off big time for your older self.

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