It's common to wonder if your 401(k) will cover all of your retirement needs. That depends on your personal circumstances and goals, but some alarming data on retirement savings indicates that most people won't get enough out of their current 401(k) investment strategies. There's no magic number to know how much you'll need to retire, but we can certainly look at proven retirement planning concepts to get some clarity on what goals you'll need to set.

How much income is normal in retirement?

No two households are the same, and everyone has different goals for their retirement lifestyle. Some people have high monthly bills, while others have close to none. Some people will incur major healthcare expenses in their golden years, while others will remain relatively healthy.

Currently, the median household income for retirees is around $60,000, and the mean income is closer to $85,000. The purchasing power of those income levels varies based on tax situation and location, but these numbers are still helpful for setting a standard.

Social Security is an important income source for most retirees. The average annual Social Security benefit for today's retirees is $18,500, so a two-person household could plausibly receive $37,000 per year. That's a substantial number, but it still leaves a big gap to achieve even median retirement income.

About one-third of current retirees have a pension, and those people are probably set to cover the income gap. However, the number of retirees with pensions is rapidly shrinking. Very few people will have guaranteed income in the future, and they'll be left on their own to supplement Social Security benefits. The best way to do that is to build investments that will eventually generate income.

Retired couple happy and relaxed on their porch

Image source: Getty Images.

How much do you need saved up?

This is a very common question with no concrete answer. Inflation and interest rates can completely change the math, and it's hard to know what those will be like if you're retiring in 20 or 30 years. There's also the issue of every household having different cash needs.

Still, there are some established rules we can follow for guidance. The 4% rule has been a staple in financial planning for years, and it states that you can safely withdraw 4% of your savings each year in retirement without running the risk of exhausting your money. With interest rates near all-time lows and life expectancy rising for healthy people, some planners believe that the number needs to be adjusted to 3%, making things even harder. The 4% rule indicates that you'll need $600,000 in your 401(k) to reach the median household income and $1.2 million to reach the mean. Remember, money coming out of your 401(k) is taxed as ordinary income, so you'll have to survive off a lower number than you're withdrawing.

The reality for most people doesn't stack up well against these numbers. The median person in their 30s has $15,000 in their 401(k). For people in their 50s, the median account value is $60,000, and the mean is $200,000. Obviously there's still time for those accounts to grow, but the data shows a clear deficiency that will be an issue for many people when they reach retirement age.

What else can you do?

It seems simplistic, but the best way to manage this situation is to develop a disciplined savings and investment plan. You should save around 15% to 20% of your gross income each year to comfortably reach the asset levels required to meet your retirement lifestyle goals. Coming up with a system to accomplish this regularly (e.g., automatically depositing 15% of each paycheck into an account separate from your checking account) is helpful for bringing organization to your savings. As it is with other parts of life, measuring your progress creates clarity and accountability.

It's also a good idea to save for retirement outside of your 401(k) for the purpose of flexibility and tax diversification. Having a traditional or Roth IRA as well as a regular brokerage account will create more liquidity for you prior to retirement. It will also present you with a group of accounts that will be taxed differently when you make withdrawals later in life. This gives you the ability to choose whichever is most advantageous at the time.

Finally, you should make sure that you are taking full advantage of employer 401(k) contribution matches, as well as catch-up contributions if you're over 50 years old. The employer match is free money for you, and it can double the amount that you're saving in that account each pay period. That's a great benefit to boost your savings rate. Catch-up contributions allow you to contribute up to an additional $6,500 to a 401(k) and $1,000 to an IRA as you approach retirement. That can help get your accounts over the finish line if you're worried about falling a bit short.