Most employees would think having $196,000 in a 401(k) at retirement would be good news but according to BTN Research, a person needs $196,000 for every $1000 per month payout for a 20 year period. This assumes a 5% return and 3% inflation without regard for taxes. Having a $1000 per month drawdown in retirement still puts the retiree at the federal poverty level for 2013 ($11490 for a one person household). The bad news is that the average 401(k) balance reached an all time high of $75,900 in the third quarter of 2012 (Fidelity Investments). Of course these averages are for illustration and do not figure on any Social Security or pensions but it is important to remember that Social Security can be changed and not too many companies still have pensions, which means younger employees really need to plan for themselves.
Companies can maximize the effectiveness of their 401(k) plan by implementing an education plan that addresses individual employee participation, savings rate, and monthly income projected at retirement. There are additional factors each person should consider in deciding how to plan for retirement and by learning financial terms and outcomes they can make adjustments in order to lessen the changes that retirement may cause.