IRS sets new IRA contribution limits — would you be prepared for retirement if you saved this much money each year?

In 2026, you can contribute up to $7,500 to your IRA, according to the Internal Revenue Service (IRS). (If you’re 50 or older, you can contribute an additional $1,100 as a catch-up contribution.) So we wondered: If you contribute just $625 a month to your IRA, will you have enough money for retirement in the future?

Well, let’s run the numbers. Let’s say you start saving for retirement at age 27 and plan to retire at age 67. While IRA contribution limits typically increase each year to keep pace with inflation, let’s assume you meet the 2026 contribution limit of $7,500 per year. (This means no catch-up contributions either.)

We can analyze two different scenarios: What if you put all your money into an S&P 500 index fund? Or how about a 60/40 portfolio consisting of stocks and fixed income assets, respectively?

A few notes: These numbers will exclude fees like expense ratios, and we will use past annual returns, which are not necessarily predictive of future returns. Additionally, these numbers assume you choose a Roth IRA, where you pay taxes on your contributions made and withdrawals are tax-free.

You can achieve the greatest returns when you invest all of your money in an S&P 500 Index Fund, an index consisting of the 500 largest companies in the United States based on market capitalization. Starting at age 27, if you put $7,500 into an S&P 500 fund each year, you’ll have roughly $1.38 million by age 67, assuming the inflation-adjusted annual return of 6.69% from 1957 to 2025 matches future returns.

In contrast, if you choose a 60/40 portfolio, you will end up with a much smaller nest egg. The average inflation-adjusted return for this portfolio from 1901 to 2022 was just 4.89%, according to CFA Institute data. If you choose this more conservative portfolio, you’ll have just over $882,000 at age 67.

Is this enough for retirement?

Ultimately, whether $882,000 or $1.38 million is enough to live on in retirement depends on a variety of factors, such as your desired lifestyle in retirement and if you have other sources of retirement income — such as Social Security or pensions.

Sometimes, experts suggest using rules of thumb, such as the 4% rule, to help people calculate how much they need to save for retirement and can safely withdraw each year without running out of money.

The 4% rule was developed in the 1990s by financial planner Bill Bengen, which states that a retiree can withdraw 4% from their investment portfolio in the first year of retirement and then adjust that rate for inflation every year after that. Thus, the retiree will have enough money to last 30 years, assuming he has a portfolio consisting of stocks and bonds.

So, if someone has $882,000 in an IRA, the 4% rule assumes they can only withdraw $35,280 in the first year of retirement. However, if that person also received the average Social Security benefit, roughly $2,000 per month, his total annual retirement income would exceed $59,000, not including taxes. That’s $1,000 less than the average amount people 65 and older spend annually.

If someone chose the more aggressive portfolio, which ended up being $1.38 million, they could withdraw more annually. In the first year, they will be able to withdraw $55,200 under the 4% rule. With the average Social Security benefit, this person would have an annual retirement income of more than $79,000.

Since the Bengen Rule assumes a portfolio of stocks and bonds, adhering to the 4% rule would be particularly risky with a portfolio invested 100% in stocks. If markets decline early in retirement, retirees may end up withdrawing a larger portion of their portfolio to maintain their desired spending, and end up with a smaller nest egg later on.