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Your most important retirement number is not your 401(k) balance.
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Most families should aim to replace 70% to 85% of their pre-retirement salary, combining savings withdrawals with Social Security.
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Adjusting the contribution mix, your filing age and products like annuities can allow you to achieve personalized replacement goals.
Reaching $1 million in your 401(k) is a big milestone, but a seven-figure balance may be just a mirage. The question is whether all of your retirement resources—401(k), individual retirement account (IRA), brokerage account, cash, and Social Security—can reliably replace your paycheck to keep your lifestyle the same for decades.
This percentage is called your income replacement ratio, and it tells the story more clearly than any single account balance.
A 2025 survey found that Americans on average believe $1.3 million is the magic retirement savings number, but nearly half expect to have less than $500,000 saved in retirement. Even withdrawing the full $1 million through the classic 4% rule would only generate $40,000 per year before taxes. Factor in longer lifespans, market volatility and health care costs, and a seven-figure balance can quickly lose its luster.
Sobering reality: The average 401(k) balance of Gen A 4% withdrawal equates to about $10,000 per year—a fraction of most household budgets.
Obviously, a lump sum payment alone doesn’t indicate whether you’ll be able to maintain your lifestyle.
Withdrawals from a 401(k) or traditional IRA will be taxed as income in your tax bracket at the time of the withdrawal.
Think in terms of percentages, not dollars. Traditional financial advice recommends replacing 75% of your final after-tax salary as a reasonable starting point, while other planners cite a higher rule of thumb of 80% to 85%. But replacement rates are not one-size-fits-all.
Social Security benefits are designed to replace about 40% of annual pre-retirement income, with lower-income workers receiving a higher share and higher earners receiving a much smaller share. Fidelity’s internal analysis shows that households without pensions need enough savings to replace at least 45% of their pre-retirement income, since Social Security and lower retirement taxes should fill in the remainder.
Result: Estimate your own ratio by subtracting projected Social Security and any pension income from the target percentage. The remaining gap is the amount of money your savings must withdraw every year.
