When you participate in a workplace 401(k) plan, you must answer two basic questions – “how much do I save” and “where do I invest?” In the past, these questions were difficult to answer due to a lack of available information. The Internet has changed that. Today, there are numerous online calculators - some better than others - available to help keep your retirement savings on track and take the guesswork out of 401(k) investing. Some of my favorites are summarized below.

How much should I save?

Many financial planners recommend you save at least 10% of your income for retirement, starting in your 20s. You want to start saving as early as you can because the longer you wait, the higher the income percentage you will need to save to meet your retirement savings goal.

To help you target an appropriate savings rate, I recommend using an online retirement income calculator. You want to find a calculator that estimates your retirement income – based on your current account balance and future contribution rate – instead of one that simply estimates a future account balance. This feature is important because it can be easy to underestimate the account balance you’ll need to retire when you don’t know how much income it will buy you throughout retirement.

Below are links to online calculators that can help you estimate the amount you’ll need to save to retire comfortably:

  • Vanguard – Among its many excellent website tools, Vanguard offers two calculators to help you estimate your retirement nest egg and how likely it will last through retirement.
    • Retirement Savings Calculator – Calculates a nest egg at retirement based on how much you’re saving. Also calculates an estimated monthly income in retirement.
    • Monte Carlo Simulator – Calculates the probability your nest egg balance will last through your retirement years. It includes sliders to demonstrate how changes impact results.
  • Social Security Administration (SSA) – Provides an estimate of your SSA benefits, based on age and current salary and gives a feel for how benefits will be affected by the age they are claimed.

Where do I invest?

When investing in a 401(k) account, you have three basic options:

  1. Invest 100% of your account balance in a professionally-managed portfolio - like a Target Date Fund - based on your estimated retirement date
  2. Let a professional financial advisor pick investments for your account
  3. Pick your own investment mix

If you are an investing novice, I strongly recommend options 1 and 2. However, if you think you’re up to it, there are online calculators that can choose investments for your 401(k) account:

  • Vanguard – Provides a custom portfolio recommendation by specifying how long you’re planning to invest and how much risk you’re willing to take. This calculator can be found here.
  • CNNMoney – Determines a mix of different security types designed to meet your retirement savings goals based on your risk profile and date of retirement.
  • Bankrate – Designed to help you create a balanced portfolio of investments. Age, ability to tolerate risk, and several other factors are used to calculate a desirable mix of stocks, bonds and cash.

Additional Resources

  • Employee Fiduciary – Check out our enrollment video to find answers to some of the most common savings and investing questions asked by 401(k) participants
  • Vanguard – Vanguard’s MoneyWhys site offers articles, videos, and calculators designed to answer investing questions. Two of the eleven topics covered relate to retirement savings.
  • Department of Labor (DOL) – The DOL’s Savings Fitness: A Guide to Your Money and Your Financial Future includes interactive worksheets. The worksheets help you manage your financial life and begin a savings fitness plan.