How Much Should People Have Saved In Their 401Ks At Different Ages
The 401K is one of the most woefully light retirement instruments ever invented. The worst is the pathetic IRA which limits you to only $5,000 if you make under $58,000 a year for a traditional IRA to completely participate. Meanwhile, you have to make less than ~$110,000 a year for the privilege of contributing after tax dollars in a Roth IRA.
Give me a pension that pays 80% of my last year’s salary for the rest of my life over a 401K any time! With the government only allowing individuals to contribute $17,500 a year in pre-tax income into their 401Ks in 2013, once again, our politicians fail us with their regulations.
You know from a previous post that the average 401K balance is around $70,000-$80,000, which is incredibly low given the median age of an American is 36.5.
As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401Ks at age 25, 30, 35, 40, 45, 50, 55, 60, and 65. We stop at 65 because you are allowed to start withdrawing penalty free from your 401K at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!
HOW MUCH YOU SHOULD HAVE IN YOUR 401K AT DIFFERENT AGES
The assumptions for the below chart are as follows:
* For the first full year out of school, you only contribute $8,000 to your 401K.
* After the first year, one maximizes their contribution every year to their 401K plan without failure. We already agree that $17,500 a year in contribution is much too little, therefore contributing less is illogical.
* Average starting working age is 22. But you can follow the number of years working as a different guideline if you graduate later or earlier.
* $17,500 is used as the conservative base case maximum contribution amount for one’s entire working life. Hopefully the government will increase the max contribution amount over time.
* No after tax income contribution, although more power to you if you have the disposable income to do so.
* The low end column assumes $17,500 X the number of years worked.
* The higher end column will assume $17,500 X the number of years worked X a 5% constant rate of return which is aggressive in this environment.
* Excludes any company match or profit sharing completely. The idea is that by excluding company match and profit sharing, that will more or less make up for the years in which one loses money in the stock or bond market. Furthermore, each company’s 401k match program is different.
* The Lower and Higher Amounts encapsulate at least 60% of all 401K levels for those who contribute the maximum amounts. There will be those with less, and those which much, MUCH greater balances thanks to higher returns.
* You are logical and not a knucklehead. Just by searching this topic, you are taking ownership of your retirement and are thinking ahead with an action plan.
FINANCIAL SAMURAI 401K RETIREMENT SAVINGS GUIDELINE
| Age | Years Worked | Low End | High End |
| 22 | 0 | $0 | $0 |
| 23 | 1 | $8,000 | $17,500 |
| 24 | 2 | $25,000 | $38,000 |
| 25 | 3 | $42,000 | $70,000 |
| 30 | 8 | $127,000 | $182,000 |
| 35 | 13 | $215,000 | $331,000 |
| 40 | 18 | $300,000 | $521,000 |
| 45 | 23 | $383,000 | $764,000 |
| 50 | 28 | $468,000 | $1,075,000 |
| 55 | 33 | $553,000 | $1,470,000 |
| 60 | 38 | $638,000 | $1,974,000 |
| 65 | 43 | $723,000 | $2,618,000 |
From the results, we can conclude that even after 43 years of consistent saving, you only have around $723,000 to $2,618,000 in your 401K. Let’s say you live for 20 years after retirement, you only get to live on $36,000 – $131,000. If goodness forbid you live to age 95, then you can only live off of $24,000 – $87,000 a year!
We know from simple economics that thanks to inflation, a dollar today will not go as far as a dollar 40 years from now. Private school tuition will probably cost over $100,000 a year in 20 years, so who knows what medical, food, shelter and energy costs will cost then. One thing is for sure, prices will be much higher.
You should check out my latest article on “How To Better Manage Your 401K For Retirement Success” where I highlight three different scenarios you should run to see if you’ll make it. Fidelity came out on 2/14/2013 highlighting the average of their 12 million 401(k) plan participants is up 12% to $77,300. For workers 55 years of age or older, the average balance is $143,300. These are terrible numbers.
TRUST NOBODY BUT YOURSELF
Contribute the maximum pre-tax income you can to your 401K for as long as you work. This is the absolute MINIMUM you can do to help ensure a comfortable retirement. After you have contributed a maximum to your 401K every year, contribute at least 20% of your after tax income after 401K contribution to your savings or retirement portfolio accounts. That way, you will have potentially DOUBLE the amount in total retirement saving if your household income is $100,000 or more. If your household income is closer to $50,000, you should still see a nice 30% boost to your retirement savings if you consistently save 20% of your after tax income.
Treat your 401K just like Social Security and write it off completely from your mind. Do not expect either accounts to be there for you when you retire, just like how you should never expect the government to ever help you when you’re in need. Just imagine 30 years from now, the government deciding to raise penalty free 401K withdrawal to age 80 from 59.5? Unfortunately, you need the money at age 60, and because you withdraw, the government imposes a 30% penalty on top of the taxes you have to pay. Don’t think it can’t happen. Expect it to happen!
The only thing you can count on is after tax money you’ve invested or saved. This is why after maxing out your 401K, it’s good to open up an online savings account, which have higher interest rates on average than your traditional bricks and mortar bank due to lower overhead costs. Your goal should be to then build as many passive income streams as possible.
Consider raising your after-tax savings percent after 401K contribution to possibly 50%. It won’t be easy, but if you practice raising your savings rate by 1% a month until it hurts, you’ll find it easier than you think. The most straight forward method is to make your 401K maximum contribution automatic, and save every other paycheck for the rest of your working life. Once you maximize your 401K and save over 50% of your after-tax income for at least 10 years in a row, you will be financially free to do whatever you want!
Recommended Actions For Increasing Your Wealth
1) Manage Your Finances In One Place: The best way to build wealth is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 28 different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing, and where my spending is going. One of their best tools is the 401K Fee Analyzer which has helped me save over $1,000 in annual portfolio fees I had no idea I was paying. There is no online product that has helped me stay on top of my finances more than Personal Capital. It only takes a minute to sign up.
2) Refinance Your Mortgage: If you are a homeowner and you have not refinanced in the past year, I strongly suggest you check online to see what the latest rates are. There is seriously some serious mortgage interest savings to be had! I always check with Quicken Loans because they are fast, quick, and provide a no obligation real quote based on the input you provide. I recently refinanced to a 5/1 ARM for 2.625% in the Summer of 2012 after just refinancing in the fall of 2011 for 3.125% from 3.625%! I am now saving $4,000 a year in mortgage interest!
3) Check Your Credit Score: Everybody needs to check their credit score once every six months given the risk of identity theft and the fact that 30% of credit scores have errors. For over a year, I thought I had a 790ish credit score and was fine, until my mortgage refinance bank on day 80 of my refinance told me they could not go through due to a $8 late payment by my tenants from two years ago! My credit score was hit by 110 points to 680 and I could not get the lowest rate! I had to spend an extra 10 days fixing my score. Check your credit score for free at GoFreeCredit.com and protect yourself. The averaged credit score for a rejected mortgage applicant is 729.
Photo: Occupy SF Tent, by Sam. Might be your home if you don’t max out your 401K and save more.
Regards,
Sam
Hello. Thank you for your website. This is great information that most don’t think about. I am 38 years old and would like to have finanical freedom but with approx. $12,000 in
401(k), a $1000.00 dollars in savings, do you have a catch up plan you would suggest for me? I live In San Francisco in a rent controlled apartment luckily!
Thanks
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Financial Samurai Reply:
January 24th, 2013 at 10:26 am
At 38, I really suggest you max the heck out of your 401K to $17,500 if it only has $12,000 in it currently. Save until it hurts, and then save some more.
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Love your advice! Anyway, I want to surrender a WRL whole life policy that is worth about $83,000 surrender value, with no surrender penalties since I have had it for 17 years. I am 46, married, no kids and minimal debt. I do have seven more mortagage payments left before I own outright on a home worth about $300,000. I also have served 29 years in the Marine Corp, with one year left. My pension from that is worth about $72,000 a year, and is COLA protected for the most part.
My wife has about $90,000 in her 401K, and she does max it out.
What are some good options for that policy? Annuity maybe? I want to roll it somewhere until about age 65. Thanks
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Financial Samurai Reply:
January 24th, 2013 at 10:27 am
Congrats on almost paying off your house! With a $72,000 pension and no mortgage soon, you guys should be GOLDEN!
I’d just continue to max out your wife’s 401K and asset allocate her age in stable value funds ei if she’s 46, put 46% in a stable value fund, 54% in stocks.
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Like the advice but struggle to see how to implement. I’m making $ 70k annually supporting a family of 3. Modest 2000 sq ft home in a no income tax state. I currently contribute 10% to the 401k and company matches 4.5%. After that though with all the hidden expenses that crop up, I am only saving probably another 5% annually.
Not sure how I could go all the way to $ 17 K AND do an additional 20% after tax. I would have to live on like less than $ 40 K a year…I could do this no problem if single but married to a stay at home mom with a 3 year old, just not sure how to make that happen…
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Mitch Reply:
January 13th, 2013 at 8:35 am
I think having a child or children is a game changer to some degree in those calculations for many families. Stay upbeat, stay focused, and do your best.
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Folks, if you are earning $100k in todays dollars, the $4 million wll be what is required to retire comfortably. And this amount is therotical, by which I mean we are assuming a know inflation from history. As inflation is a risk, so there is no guarenty that $4 mill is enough. So good way to plan for retirement is not just 401k, but other investments alternatives too which are immune to inflation. One thing I can say is thata renatl income is immune to inflation. All my friends in late 30′s have already purchased a rental property for $200K or $300K whihc is generating around $2K of rental income. So folks think of retiremnt planning beyond 401k plan, inflation is “The” biggest enemy.
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Financial Samurai Reply:
January 6th, 2013 at 12:56 pm
I agree with you on rental income and inflation.
Please read my latest post on real estate, my favorite investment asset class. http://www.financialsamurai.com/2013/01/04/the-real-estate-investors-mindset/
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Your numbers are a bit rediculous. Please tell me how a 22 year old who after one year can stash 8k into a 401k let alone 17k on the high end? After one year? Even assuming they made 100k a year that is either an 8% to a 17% savings rate, how many 22 year olds are making 100k? After two years it jumps from 8k to 25k? A 300% growth rate? These numbers are rediculous and lose all credibility from the start.
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Financial Samurai Reply:
January 24th, 2013 at 10:25 am
If you look at the chart again, I assume a 22 year old has 0.
You can complain, or you can save. It’s up to you. I made $40,000 base salary the first year out of school and saved over $8,000 in my 401K my first full year. I had a roommate and spent my money wisely.
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Mike Reply:
February 21st, 2013 at 5:41 am
You know even kids coming out of school with degrees are having a hard time finding jobs. You make it seem that just because you get a degree that you automatically will have a great job and make a lot of money right away. You obviously are not that old are you? Try reading the Wall Street Journal or look at the job markets out there. People are struggling out there with or without a degree. Just because you landed a good job does not mean everybody coming into the job market will get one. Instead of telling all of these people that they should have X amount of dollars by a certain age is not really a true goal. Rethink your chart and think about those that are not able to get a degree and have to make the best of it as best they can. Not everyone who starts school finishes either. Also vets coming out of the service with no pensions, are they all going to get a $40,000 a year job with a 401 k to go with it. It is not all that simple. You make it seem like it is a no brainer! Get real dude! Stop giving advice to those who cannot possibly get there without time and of course a good job with 401 k’s.
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John From NY Reply:
January 30th, 2013 at 7:29 am
@ PM
I am 26 soon to be 27 years old. I have $74,000 in my 401K plus an additional $18,000 in a Roth IRA. I live in an apartment with a roommate and we each pay $1100/month in rent plus another $100 so each a month in utilities. I have a car loan that is $500/month. I have no credit card debt. Between salary, bonus, and other perks I make about $85000/yr, a large bulk of which is bonus. When I was 22 I made $45000/yr. You can save money.
My biggest suggestion would be to go to your HR department and have then take out whatever % of your paycheck gets you to your 401K max. That is what I do. The biggest challenge is getting used to a lower paycheck every week. Remember, if you get paid every week and you take out $336/wk towards 401k, your paycheck doesn’t go down by $336. That $336 comes out before taxes.
I’ve decided that I want to purchase an apartment or home in the next 3-5 years. I came up with this savings plan. I sat down with an excel spreadsheet and wrote out what my true monthly expenses are. My monthly bills that I have to pay every month come to approximately $1950. I give myself $100 a week of “spending money” which is basically eating out money, grocery money, and small stuff (video games, etc.). I put aside $2000 a year to buy gifts for people, and $3500 a year for vacations. I max out $17500 into my 401K and save $5500 a year towards my Roth IRA. After all of that I am able to save an additional $5500 in cash which I put into an investment account (which currently has about $15000 in it) plus I will put whatever I get from my bonus (probably another $7000-$9000 after taxes). If nothing horrible happens, I figure between pay raises and such, it will take about 4 years to come up with about a $70k down payment with $30k in cash as an “emergency fund.” At the end of this year, with my current savings rate, I will have that $30k and just be starting to save towards a down payment.
My advice, be steadfast and make sure you have 17,500 coming out of your paycheck. You will “adjust” to having less money.
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BklynGirlNy Reply:
February 2nd, 2013 at 9:10 am
John I agree, I was taught contributing the max for 401k is the way to go. I’m also turning 27 in a few months and have $100k in my 401k, decided to cash out my Roth IRA after having it for a year and focus on 401k. I also have $125k liquid. I have the advantage of living at home right now yet am looking to buy a home preferably one for investment purposes like a two family or more. At times I feel like I am contributing too much to my 401k as my liquid money is still not enough for a down payment for a home ( taking into account that i cannot use my entire savings and still need an emergency fund) in one of the five boroughs of NY and I feel like I am saving but will never reach my end goal. I have also thought about borrowing against my 401k for a down payment yet am not sure if thats the smartest thing right now. I live very comfortably and am not depriving myself of anything yet I need to come up with more of a solid plan. You seem to have a solid plan. I may try using excel and come up with something myself. I have thought about meeting with a financial advisor but not sure if its worth it. This is all money I have earned while working for the last ten years starting with part time jobs and eventually landing full time jobs after college. My current salary is $80k.
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John From NY Reply:
February 4th, 2013 at 9:46 am
I look at it this way with the 401k max…money saved now is worth way more than money saved later. If when I’m 50 and I have a child in college and I’m paying tuition for another one in high school, I may not be able to afford 17,500 (or whatever the max contribution is at that time) a year. But at that point I may not NEED to save as much because I’ll have over $1,000,000 saved…plus whatever my spouse has.
As far as the Roth, I don’t think there’s anything wrong with putting money into it right now. 1) I can take out my contributions at any time so it might as well be another savings account and 2) If everything goes as planned in a few years I won’t be able to contribute to it anymore anyway as I’ll be making too much money.
Not sure how much you plan on spending on a condo or apartment, but 125k cash is PLENTY to put a 100k down and finance the rest with a 25k cushion. What I worry about is with an 80k income can you afford a 400k mortgage? With the amount you have saved I would say yes…I wish I was as disciplined as you and had that much… Problem for you is city taxes…they’re miserable. What about living in Jersey? You can get some really nice places in Jersey City/Weehawken/Hoboken for 500k which is more than I am looking to spend on my first place anyway.
Kevin Reply:
February 6th, 2013 at 8:39 pm
BklynGirlNy,
Don’t take a 401k loan. That’s the biggest No-No in the book. First, if you ever have issues and need to file for bankruptcy, those 401k loans will not be expunged and you’ll still owe that money. Don’t be fooled by the attractive borrowing rate from the 401k.
Kevin Reply:
February 6th, 2013 at 8:33 pm
John,
You can still contribute to a Roth IRA at ANY age currently. Just make a Non-Deductible IRA contribution, and immediately convert that amount to your Roth IRA. Since it’s non-deductible, it’s already consider After-Tax money, so you won’t be taxed on the conversion. Just make sure to tell your accountant, since there is a special form they’ll fill out for the contribution. Happy Saving.
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Cara Reply:
February 9th, 2013 at 4:00 pm
Dear John-
What’s your job?
(Because I want to make $85k a year! I may need a new job for the new year.)
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Not sure how you came about with your analysis but there are very few 2 income families let alone individuals that can put away $17,000 a year in their 401k. There is no real analysis done. The media HOUSEHOLD incom (not individual income) is around $51,500. So you’re expecting those households to put away($17,000) 33% of their income and pay their day to day living expenses with what exactly?
The much better, much more sound advice is to put away a percentage of your income to reach a level that it at least maintains your current standard of living in retirement and for most people it’s not going to be $17,000. That’s why the low end high end chart is a bit silly. Low end high end for who? What type of income? What type of profession? Medical doctors are in school or training through most of their 20s and don’t even start drawing a decent salary until their late 20s or early 30s.
I noticed you stated you were able to contribute 20% of your salary to your 401k out of college. Most college graduates have huge school loans to pay off on top of every day expenses. Anyone that can put away 10% of their salary at the start of their career and increase it 1% each year their salary increases is doing really good. If you get a huge salary increase put away 2% or 3% more instead of 1. Plan for tomorrow but live for today.
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Financial Samurai Reply:
January 25th, 2013 at 10:56 am
The median salary for a college graduate is around $45,000-$55,000 now. The $17,000 is pre-tax contribution and I’m not accounting for employer match or growth. I put away about $10,000 in my 401K pre-tax w/ a $40,000 base salary living in NYC of all places.
It’s up to you whether you want to save.
You can read this post / chart if it makes you feel better. I provide a percentage based on income. http://www.financialsamurai.com/2012/12/03/how-much-savings-should-i-have-accumulated-by-age/
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These figures are absurd and not realistic. Fidelty just realized that the averaeg American has $75k in their 401k. Yet this article says you should have that much by age 25? Please. These numbers are not realistic in today’s economy.
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Financial Samurai Reply:
January 27th, 2013 at 11:31 am
John, this is what I think Anericans SHOULD have, not what the average American does have.
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Hi Sam,
Still trying to grasp how this works. I have not dipped into 401k’s yet. Dumb question but when the 401k is set up, the contributions we request to be taking out automatically from our paycheck is considered pre-tax correct?
My current job uses ADP (unfortunately) for benefits. The 401k is not matched, I should still make use of it right?
Thanks!
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Valerie Reply:
February 4th, 2013 at 11:23 pm
You are better off with an IRA through a brokerage firm like Scottrade than to be contributing to 401k that has no company match. You will have the option of a Traditional IRA or a Roth IRA and many more investment choices elsewhere. No match company match = not worth it (401k).
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I am 40 years old and have 200K in my 401K based on a 10% contribution rate. I went a different route and paid off all of my debt including my house, a vacation home, cars, student loans etc. Moving forward I will be able to max out my 401k easily based on these numbers if I so choose. Pay yourself 1st.
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I started putting in my 401k at 21 and am now 34 with a balance of $147,600. I live in an expensive city (Seattle) and have never made more than $52,000 a year. When I started my 401k, I made around $26k a year I believe. I used to put 15% for the first couple of years, but have dropped it to around 5-10% since then. I’m sure if I had a college degree or if I was married, i’d have a larger nest egg, but I don’t.
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Financial Samurai Reply:
February 5th, 2013 at 6:55 am
That’s a healthy balance, especially given you’ve never made more than $52,000! The average 401K for someone in their 60′s in the US is around $100K. Well done! I suggest you sign up for a free wealth management tool like Personal Capital to keep track of your finances. Run your 401K through its 401k Fee Analyzer and see where you can optimize. I did, and I’m paying $1,000+/year less in 401K fees!
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Tripp Reply:
February 15th, 2013 at 3:44 pm
Whoa, Thanks Financial Samurai
I ran that as well and paying about 1200 a year on 401k fees. After you found out what did you do to reduce this?
thx in advance
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Maan, some eye opening stuff here. I turn 33 in a month, my 401k is only at $55k, I feel like I’m definitely behind the eight ball here. My company matches up to 6% so I maxed my contribution at that. Not really living hand to mouth, and not debt free, but nowhere near struggling either. Should I raise my contribution rate??
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Financial Samurai Reply:
February 12th, 2013 at 7:03 am
It depends on how comfortable you financially feel and how much longer you plan to work. Do you have any other savings in after tax accounts? If not, if get busy maxing the 401k out now.
Check out this related post I just wrote as well. May help inspire you to save.
http://www.financialsamurai.com/2013/02/11/recommended-net-worth-allocation-mix-by-age-and-work-experience/
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I contribute to both a roth 401k and a traditional 401k. I contribute 6% to each and my employer matches 50% of both. When I look online my account has 1 balance. So it appears that my roth and regular 401k are combined into one acccount balance. How does this work with taxes when I go to take them out? Or are they kept seperate behind the scenes? Thanks!
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Great info! I am 48 years old, make $100K/year, am single and in my opinion have done a good job at saving $$ but a terrible job at managing. I usuallyt save more than I spend after paying my bills. After losing in early stock guessess and renting for my whole life, maybe not best decisions. I was burned in last stock downfall and put most of my money in a very low cost saving account. I have $315K in my 401K, contributing the max every year. I have $475K in cash basically earning no interest. I live in an expensive area and would need a couple hundred thousand $$ to make a move to purchase a home. My questions are:
1)how am I doing savings wise if I wish to retire early-while stil working part time at a lower stress job
2)am i better continuing to rent and investing the bulk of my savings or putting a large chunk into real estate?
3)How can I find someone to help advise me? I am a scientist who can clone cells, but cannot balance my checkbook. I am not afraid to pay for help, just not sure how to ask or how ot find a qualified person with my best interests at heart.
I am lucky enough to make a higher income than my friends and family and do not discuss $$ issues with any of them. Please help!!
[Reply]
Financial Samurai Reply:
February 15th, 2013 at 11:06 am
Hi Kevin,
Good to hear from you and hope you stick around the site and subscribe. Some thoughts:
* With ~$315K in 401K and $475K in cash, I say you are doing pretty well. Sounds like you have a stable job and can work for another 10 years. Take a look at this post, “Recommended Net Worth Allocation By Age And Work Experience.” I spent over 10 hours writing this post to help folks try and prosper during good times, and lose less during bad times.
* I recommend you sign up with the free wealth management online tool I use called Personal Capital. Personal Capital helps track my net worth automatically, cut down portfolio fees I didn’t know I had, and keep track of my spending. For more info you can click here for my review. With your asset base and goals, I really think it’s a no brainer. They even have wealth management advice if you wish.
* If you’re interested in direct financial consulting, I offer my own services as well. However, I recommend you read my About page and spend time reading a lot of my post in the Real Estate and Investing categories, first before you decide whether you want to work with me. I only work with those who really want to take command of their financial lives and who can comfortable afford the services.
Best,
Sam
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I have a bit of a different question for you, I have about $600,000 in my 401K, my wife passed away about three years ago so my retirement plans have changed to say the least. I will begin to collect a retirement from the Navy in June which includes medical coverage at a very reasonable cost. I also will collect a pention after 37 years with my company baesd upon the best five year average (1.8% per year for the first 20 years and 1.2% for each year after) so I do not expect to need my 401K at all, I also own my home free and clear. So my question is, what is the best way to make sure that my two children get the max from my 401K.
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Well, I have to say this is an aggressive chart at best. I too am retired from the military and I can tell you that there are not that many people out there with great jobs making $40,000 a year in their 20′s here in the south let alone the rest of the states. I can save 20% of my pay but I also have a pension as well to fall back on. I intend to add 5% a year until I hit 55% of my pay in about 7 years. Not many people where I work at can do anything like that. There are single moms, unmarried couples who work part time and the like. Your chart although interesting is not facing reality in today’s world. Too many people cannot find a job let alone one with a 401 k to go with it. This is great advice for those who have all the right checks in the boxes. But for those who cannot fit into this world of yours where everybody has a decent job and can put 20% away in a 401 k is crazy.
[Reply]
Financial Samurai Reply:
February 21st, 2013 at 6:46 am
Mike,
You might be the luckiest of all with a pension.
Take your annual total pension income, divide it by 3% or 4% (0.03 or 0.04) and that is the value of your pension. I’m sure you are killing it.
Sam
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These figures are silly at best. The average American makes under 40k a year. To put away 17k a year means 42% of your salary at 40k a year. Americans should be putting away a percentage that will give them at retirement enough to maintain the lifestyle they live now. Based on your comments here, not only should someone sock away 17k, they should be making minimum 85k per year, have a roommate, and wait til 35 to have kids. Wishful thinking at best. Outright silly.
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Financial Samurai Reply:
February 24th, 2013 at 7:40 am
Here’s an article that can help you save more. What’s silly at best is not saving more for your own well being and expecting the government to bail you out. If you believe you will only make $40,000 a year in your career, then good luck to you.
http://www.financialsamurai.com/2012/12/03/how-much-savings-should-i-have-accumulated-by-age/
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I think that this advice needs a reality check. First off, assuming that an individual is able to find a job in this economy after graduating college, you are saying that I am to contribute $8k to my 401k plan? Really? Not sure what planet you are on, but that would be amazing considering I’ve been in the workforce for 19 years and even I am unable to contribute $8k to my 401k plan. Secondly, you are saying after the first year $17k is too little?!? Again, your outlook is unreal. Even in a healthy economy, where magically every college graduate is able to get a job and have the ability to put ANY money away while paying off a student loan and trying to make ends meet, your advice is nothing less than bogus. Again, reality check. Sorry about that.
[Reply]
Financial Samurai Reply:
February 24th, 2013 at 4:28 pm
Mike, unfortunately, just be size you can’t contribute $8,000 a year to your 401k after 19 years doesn’t mean that others can’t or should follow your path.
The real reality check might be your own savings habit. Have you calculated how long you can live off your 401k? Do you plan to work forever?
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The real reason why your numbers do not make sense is that someone is making enough money to be able to max out their 401k contribution, is already pretty well off.
So they should be able to invest 17k in a more flexible vehicle rather then locking it away in a 401k.
While there are benefits from having your money in a 401k on paper, they are outweighed by having the liquidity and flexibility of the funds in a cash account where you can invest more freely.
Someone who can put away 17k (or more) is also able to withstand loss of that money. Therefore, they can withstand more risk, they can/should put that money to work in a more flexible way. Yes if the person is just stuffing the money into a savings account, they should put it in a 401k instead.
If they lose a couple of percent here or there due to taxes it doesn’t matter since they’re well off anyway. The ability of other investments to outperform the 401k it more than makes up for paper tax savings way down the road.
A person with such wealth may also have opportunities to invest which they can’t move on if they are stuffing all their funds in a 401k.
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I’m 52 years old and have recently been laid off. I have around $1m in my 401k. I plan on rolling it over into something secure but I have not yet talked to a financial advisor. My question is what would you recommend i do? I have very little debt and but hope I can have some income from my 401k investments to live on. With interest rates where they currently are I wouldn’t think I should expect much rate of return. Any ideas? What kind of rate of return can I get these days?
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Financial Samurai Reply:
March 3rd, 2013 at 7:11 am
Nice job amassing the $1 million Clay! Sorry about the layoff. Hopefully there is some good severance?
You can either leave your 401k in the existing plan or roll it over to an IRA. Do you need to touch the account since you have 7.5 years left until it can be withdrawn penalty fee.
For income, it’s dividend stocks/funds and municipal bonds. 7 year CDs are at about 2%. Not great, but you won’t lose money most likely.
I highly encourage you to sign up for Personal Capital and run your 401k through its 401k Fee Analyzer. I discovered over $1,700 in annual portfolio fees and my 401k portfolio is only $420,000! The free tool will also provide some asset allocation advice for someone your age. Signing up is definitely worth it as you need to be all over your money at this juncture in time. Here’s a review I wrote as well.
Your number one goal should be to not lose money and then make a relatively risk free rate of return.
Regards,
Sam
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Sorry to kill the party but you really have no idea what you’re talking about. Your numbers are very questionable, unrealistic, and for the most part, inaccurate. You need a refresher on on econ 101:)
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Financial Samurai Reply:
March 4th, 2013 at 10:54 am
Well, at least I’m financially independent :). What’s your story and 401k amount? Do you love work so much that you don’t want to save more?
Here’s a follow up post for you: http://www.financialsamurai.com/2013/02/05/median401k-retirement-balance-by-age-is-dangerously-low/
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Hello. My wife and I are in our early 40s and we have $750K in retirement investments ($400K in 401K, $150K pension, $200K Roth IRA), $150K in college savings 529 plans, two years pre-paid tuition at an IL state school, $190K non-retirement savings and five years and $100K mortgage remaining on our house. I feel pretty good about our retirement savings, but I’m concerned about the college fund balances. Do you agree that I should continue to max out on the 401K (company matches 8%), or should I begin to move more to the 529 plans? We expect our kids to enter college in 2020 and 2024. Thanks for your insight.
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Financial Samurai Reply:
March 5th, 2013 at 2:54 pm
Hi Andy,
You and your wife are doing great and I recommend both of you to continue maxing out the 401k if possible. The question is, how long do you plan to keep on working? If the answer is another 14 years or more, than you are golden and have nothing to worry about. If the answer is you want to retire early within 10 years, then I’d at least contribute to the 8% match, figure out alternative income streams, and contribute more to the 529 plan.
You have a lot of financial accounts going on like me, so I also recommend you sign up with the free wealth management online tool, Personal Capital. I’ve aggregated all my accounts so I can get an idea of where my money is going and where I need to adjust my assets. Personal Capital tracks your net worth and gives you a bird’s eye view of your finances to make better decisions. The tool is already saving me over $1,000/year in portfolio fees from my 401k I had no idea I was paying thanks to its “401k Fee Analyzer” tool you can run once you’ve linked your 401k account. My 401k is basically the same size as yours btw! It’s free and easy to sign up.
Good luck!
Sam
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This article only discusses one point of retirement. If I had your low end of 215,000 at 35 I would calculate out the penalties and taxes and use what is left over to pay my house off. That will instantly give me a pay increase of 1500 a month and an asset for future use. Your article only focuses on 401k which is putting all of your eggs in one basket. The real way to retirement is a strategy and owning where you plan to live.
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Financial Samurai Reply:
March 7th, 2013 at 9:13 pm
I agree.
Please take a look at this post: http://www.financialsamurai.com/2013/02/11/recommended-net-worth-allocation-mix-by-age-and-work-experience/
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I agree with everyone else that your advice is not only ridiculous in today’s economy, it is so high-handed and unrealistic as to be detrimental to the morale of those wishing to save. I am a college graduate working in a call center full of other college graduates. It took me two years of odd jobs to even get that. After taxes, I earn about $2,100 a month. In our high cost of living area, I pay $500 in rent and utilities, even with a roommate. So according to your scale, I should put about $1,400 into my 401k. Between that and rent, I would have all of $200 a month to pay for food, gas, and insurance. Does that seem doable to you? And I am by no means an isolated example in today’s world. Instead of giving people unrealistic advice, why not show them how to invest according to their means? Otherwise you may as well say “The best way to invest for retirement is to be a millionaire” and save us all time.
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Financial Samurai Reply:
March 9th, 2013 at 10:51 pm
Tell me more about “today’s economy.”
As far as I can tell, we are recovering nicely and the stock markets are at all time highs.
I was able to contribute 10k to my 401k when I only made $40k living in NYC. I did share a studio with another fella for two years to save money. Saving and making money is a choice. You need to be offended by your own actions in order to change. Nobody will do it for you.
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Anon Reply:
March 10th, 2013 at 11:35 am
“Today’s economy” is one in which over half of recent college graduates are un- or underemployed. “Today’s economy” is one in which there are over three unemployed people for every job opening. You know, you keep saying in the comments that you managed to save while making “only” $40,000 a year, but you haven’t mentioned what year that was. It looks from the “About” page that it was probably about 1996. Adjusted for inflation, that means, in today’s dollars, you were making approximately $59,000. The average salary for new grads in 2013 is approximately $44,500, meaning that you were making almost a third more than than the average new grad. Not to mention that 1996 was in the middle of one of the strongest job markets and best economic times the country has seen. So please, explain to us again how ignoring current economic and employment statistics and pretending that we’re still living 17 years ago is a sound retirement strategy.
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Financial Samurai Reply:
March 10th, 2013 at 11:46 am
It was in 1999 in NYC. $40,000 doesn’t go far in NYC, even in 1999. The cost of living in NYC Manhattan is way about the average cost of living in America. Have you never been?
You can complain about not making more and not saving more, or you can do something about it. Immigrants come to Anerica everyday and work their tails off and do well. What is your excuse? Do you come in before everyone else and leave after everyone else? Are you working a second job or building alternative income streams? Tell me more. The attitude you have is destined to keep you from retiring for a very, very long time.
I’m curious about your math. Your “About” page claims you worked 13 years in corporate America until 2009. Which would have you starting in 1996. You’re now saying that you started in 1999. Where did those other three years go?
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Financial Samurai Reply:
March 10th, 2013 at 12:21 pm
Read my about page a couple more times, and this portion of my About page as well and I’m sure you will figure it out, “Three years after starting this site in 2009, I took the leap of faith.” Thanks
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Anon Reply:
March 10th, 2013 at 1:03 pm
Yes, that explains the four years between 2009 and now. But you said you worked in corporate America for 13 years before 2009. 13 years before 2009 was 1996. Yet here you’re saying that you started saving in 1999. So where did those three years go?
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Jack Reply:
March 10th, 2013 at 5:25 pm
Not sure if English is your second language, but if it is and you can’t understand that three years after 2009 is 2012, and 13 years minus 2012 is 1999 then I think we know why you don’t have much savings and are unhappy with your job.
I’m 29 years old and have $185,000 in my 401k. What about you?
@Anon
And no, like all hourly workers, I neither come in early or leave late. Legally, I can’t, as I would have to report the time (legally) and my employer would have to approve overtime hours (which they don’t). Or is your investment advice now to illegally perform unpaid labor?
Look, my point is, you want to be a financial advisor, but you don’t want to advise all walks of life. Instead of getting mad at people who are average earners, why don’t you either a) market yourself as an advisor for top earners or b) advise people on how to save according to their means? “Earn more money” (without actually mentioning how) is not saving or investment advice. Nor are people average/low earners because they’re lazy. Pretending that they are does not make your advice more effective.
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Financial Samurai Reply:
March 10th, 2013 at 12:27 pm
Exactly. Don’t be angry with others that you aren’t saving enough or making enough to live a comfortable life now or a comfortable life in your future. Use your anger and frustration as motivation to improve your well being. I know very few people who got straight A’s in high school and went to great universities who aren’t making decent money and doing well. But I do know plenty of folks who did poorly in school and don’t do anything beyond their job and are upset why they don’t have more.
The amount of folks who feel entitled are amazing. Seems very prevalent with the 20-something year olds don’t you think? You have nobody to blame but yourself.
Take a look at these posts to help you do better and not be as upset with others who have more.
http://www.financialsamurai.com/2010/02/01/do-c-students-deserve-a-lifestyles/
http://www.financialsamurai.com/2010/10/03/how-to-make-six-figures-income-at-almost-any-age/
http://www.financialsamurai.com/2011/08/31/are-there-really-people-who-only-work-40-hours-a-week-or-less/
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Anon Reply:
March 10th, 2013 at 1:14 pm
I love how the retirement advice has gone from “be rich” to “work slave labor illegally” to “go back in time and redo high school.” These are all realistic options. You know, maybe I’ll start a financial blog whose sole advice is “win the lottery”. When people point out that it’s not a realistic goal, I’ll respond, “You can choose not to win. How many tickets have you bought today? Have you tried bribing the commissioner this week?” Other lottery winners will chime in, and we’ll all congratulate ourselves on our astute choices to buy those particular ticket at those particular times. After all, everyone had the option to buy those same tickets, right? So the only reason we’re rich and they’re not is that they were too dumb or lazy to make the same ticket choices we did.
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And yes, disillusionment is incredibly common among 20-somethings. It’s almost like we’re an entirely different generation with entirely different experiences and outlooks, huh?
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Jack Reply:
March 10th, 2013 at 5:28 pm
It almost is, but things are easier for you guys now with the internet. Too many excuses why you aren’t saving is the mantra du jour. With the internet the world is your oyster.
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This is all good info and really scary. I’m 31 and I contribute about 8% of my income to 401K. I make less than 60k a year and have 70k in my account, so I’m about half way to where I need to be. I’m also preparing to buy a wedding ring, house, paying off student loans…etc. How is anyone supposed to do this?
My answer is…enjoy life now, go on vacations, splurge now and then, don’t worry about living off of 20k a year in retirement, because at that point you’ll be glad you had fun when you were in your prime. Also, you could die tomorrow…
So what’s the point of living off no spendable income for the next 40 years of my life in order to live in a nice retirement village in Florida when I’m 70?
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Financial Samurai Reply:
March 13th, 2013 at 3:46 pm
Good stuff! Only live once, and with Obama and big government taking care of us, I agree with you. It’s getting kinda silly saving so much to take care of ourselves when we are older.
I think you’ll enjoy this post:
http://www.financialsamurai.com/2013/02/16/my-poorest-friend-is-one-of-the-richest-people-i-know/
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JCM Reply:
May 1st, 2013 at 10:25 am
Just because this guy has a different view of how he wants to spend HIS money, you chastise him. Not everyone has the same life concepts as you sir and your whole “living off the government” comment is completely uncalled for.
If you’d rather work your butt off to live the easy life when you get older, more power to you. I too have worked out all of my expenses in excel and worked out a savings and retirement plan that works for ME and not for the average person. I also don’t plan to stop working, I have a hard time taking a week vacation if I’m not in another city or state… what on earth would I do with years?! I know I could save more if I moved into more modest living quarters and stopped going out so much, but as you said… you only live once.
Also, perhaps you should be thanking Obama for the great stock market you so avidly praise.
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Financial Samurai Reply:
May 1st, 2013 at 10:41 am
I’m very thankful for Obama. In fact, here’s a post I wrote recently entitled, “Why Work When We Got Obama Said My Rich Friend?”
My 401(k) savings post by age isn’t a one size fits all solution. Everyone is free to do whatever they want. Just don’t complain at the age of 50 when one doesn’t have enough money.
If you want to know the pros and cons of retiring early, feel free to click this other post I wrote where I don’t mince words either.
Does one have to be concerned if they are not on the high end of the table for their 401k? How about if someone who is close to mid 40s (me) has other means that surpasses that amont? I guess the issue is the ROI for the other assets. I’m just looking what folks think about the high end assumptions and if it can be offset by other assets.
For me, I’ve been very conservative especially after losing quite a bit of my 401k during the tech bust(otherwise i would have been above the highend). So my portfolio has been very diverse, but looking to retire in a few years.
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Financial Samurai Reply:
March 17th, 2013 at 10:49 pm
Consider using my charts as a guide. If you combine your other savings and investments with your 401k, you should be fine and doing great.
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I am 35, married, with 4 children and my wife is a stay-at-home mom. I have been averaging $40-$45k/year for the past seven years and have $75k in my 401k. I recently started a new job making $64k/year and set my 401k at 10% with company match of 8%. My goal is to pay off the credit card debt we created to stay afloat. I only have one car payment ($200) and my house payment is only $450 for the next 16 years. Once I pay off my non-essential debt I plan on bumping my 401k up to 12%. I don’t know if I am on track or not, but I know I am WAY better off than most people I know.
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Financial Samurai Reply:
March 21st, 2013 at 8:30 am
Hi Rick – Everything is relative, so that’s good you feel like you are ahead of most other people you know. It’s how you frame your scope. Financially discomfort happens when you start comparing yourself to others better off. So in conclusion, keep up what you are doing, be happy and enjoy life! Sam
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Hi, thanks for your article. I currently have consolidated all of my finance info on mint.com. Do you think that instead that I should work on Personal Capital instead? Also, should I purchase Quicken itself?
Do you have any personal investment in Personal Capital?
Thanks for your help!
p.s. what percentage of your net income should go towards your mortgage?
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Financial Samurai Reply:
March 25th, 2013 at 9:50 am
Nice to have you. I would sign up for Personal Capital because it only takes a minute to do so, and perhaps another 5 minutes to upload all your accounts, depending on how many you have. Personal Capital is better for investors who have accumulated, or are on their way to have accumulating lots of assets. Give it a go through my customized sign up page and let me know your thoughts.
The best feature about Personal Capital is the 401k fee analyzer imo. I’m saving over $1,000 in fees a YEAR I had no idea I was paying just by running my 401k through the tool.
For your mortgage question, it depends on how much you make. If you make less than $200,000 gross a year, I’d keep the percentage of net income going towards your mortgage at 35% or less.
Cheers
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Finance Naive Reply:
March 25th, 2013 at 10:47 am
Hi Financial Samurai, THanks for your quick response. My husband and I make a total of approximately 250K+ per year. In that case, how much should we be paying for our mortgage?…
Also, do you have any financial disclosures for Personal Capital? If you do, that’s okay. Because if it’s a good fit for us, I would sign up for it regardless. I’m just curious.
Thanks!
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Finance Naive Reply:
March 25th, 2013 at 10:50 am
Hi Financial Samurai, just went to the page. Just saw that you are a partner. Website looks good. Good job on the site. Thanks again on all your advice!
Financial Samurai Reply:
March 25th, 2013 at 11:29 am
Yep, no prob. I only highlight things I used, have used, and like. There’s a ton of stuff out there and I’m just focused on the best things.
Great article. Really enjoy the comments. I’m 42 yrs old, met my wife 15 years ago, had 4 kids. When we met, I was making 12K a year. My wife hasn’t worked outside the home since we got married. I’ve gone up in income over the years, and have been foolish by contributing, then withdrawing, funds from Employee Stock Pension Plans, 401ks, etc., to pay for lifestyle stuff. I got debt free (paying off all consumer loans) about 10 years ago. My income seemed to shoot up immediately. I got a raise. I started an independent consulting firm (sole proprietership) on the side. My income continued to go up. I started a SEP-IRA, and did a 401k again with a small match. I saw results growing. I don’t touch it.
When I turned 40, I had a heart-to-heart with my parents, and realized that they are broke, and owe 250k on thier house in their 70s. Eek. I lovingly told them to NOT give me anything in their will, that way I’d be more motivated on my own to succeed. I begun maximizing everything I could – 401k, ESPP, and SEP-IRA, emergency fund. I go out to eat weekly with friends. I take my wife on a date every week. I don’t travel or vacation much at all – if ever – but I have a nice farm, work from home, make a great income, and eventually can retire with dignity on my own without expecting the government to take care of me. We are cash poor, but debt free, and accumulating wealth like mad.
To anyone younger than me: please oh please start saving when you are young…compounding interest is your friend. I only got serious about saving for retirement a few years ago, and have stockpiled away about 125,000. When you’re debt free and live within your means, this is all possible. Hope is the great motivator. The chart up above says that on the low end, I should be at 300,000 by now. I’m not there. I don’t blame others – only myself. I did feel good when I found out that most people have far less than I now do in their retirement accounts. It also feels good to know that unlike most Americans, I have zero debt. That feels good for about a day. Next step for me was to set a financial goal properly, read informative information offered at sites like this, and to associate with those older and wiser than me about money (not my parents). I have a vision, and plan to meet & exceed my goals.
I realize that when you’re in the trenches, struggling with debt, have a car, truck, boat, credit card, or house payment over your head, it seems impossible. You need a paradigm shift. I had to grow up financially, and now I’m killing it. Will I be a millionaire someday? You bet. Will it be in the next year? No…but I’m not discouraged. I know I’ll make it. If a guy making 12K a year out of college in 1994 can do it, so can you. Don’t give up. Have faith in yourself. You can do it!
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Financial Samurai Reply:
March 27th, 2013 at 7:18 pm
Welcome to my site and I’m glad you have enjoyed the discussion! Let’s pray for the best for your parents.
I love your attitude of blaming nobody but yourself. Taking ownership of your finances is what counts, which is why I love using Personal Capital, a free online wealth management tool to track my wealth, reduce my portfolio fees, and keep me within budget, especially now that I’ve retired. I just had lunch with one of the product officers here in San Francisco and they are rolling out new helpful features over the next three months.
I think you will be a millionaire by the time you retire. You’re focused, are taking the time to do your research, aren’t making excuses, and have a GREAT attitude! I hope you subscribe and see you around more. There are lots of articles on retirement here that you will enjoy. Check out the categories on the right side bar for more!
Best,
Sam
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My Husband and I are in our early forties and we have 3 young kids aged 3 -10. I recently quit my job to stay home with kids as one kid has a chronic illness. My husband is self employed and makes approximately $200K per annum. We have $400K in money market savings, $100K in 401K (from my previous employment), $40K in short term investments, Commercial property worth about $65K owned outright bringing in additional $12K per annum. We have 12 years and $350K left on primary mortgage and 8 years and $150K left on another commercial property mortgage. My husband seems to be totally stressed out that we have not saved enough and is bent on saving 50% of income this year and to keep that up for next 10 years. This new budget has meant no vacations, no new house , no extras for the kids. Saving in my mind will make us cash poor in the present. We disagree completely on how much we need to save each year for going forward as I think we should be more than OK saving half that amount $50K and using the rest to enhance our current standard of living. Can you provide guidance on how much you think we should be saving in order to be prepared for college tuition starting in 8 years and retirement at 65.
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Financial Samurai Reply:
March 28th, 2013 at 11:54 am
Hi Dee,
Welcome to my site. The $400K in money market savings points to a very conservative outlook. Were you guys burned (like myself and so many others) back in the 2008-2009 downturn and never got back in?
There has to be balance. You guys clearly have a good income stream and nest egg, but the life of an entrepreneur is uncertain, especially now that he has to take care of all four of you. Perhaps there can be some kind of compromise where you take one inexpensive vacation a year, and you work part-time when feasible to help alleviate his stress?
Where do you guys live and what’s your expenses look like? One suggestion I recommend is to sign up with Personal Capital, a free online wealth management tool that gives you a good snapshot of where all your money is. The stress comes from not having a clear picture among other things. Once you aggregate your accounts, you can see where you’re too conservative and too risky. You can also keep track of your family’s income and expenses. Sit down together to study your finances on the PC dashboard, and make financial decisions together.
Good luck!
Regards,
Sam
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What are the odds the government will confiscate private retirement funds and redistribute them for the “supposed” greater good of society.
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Financial Samurai Reply:
March 28th, 2013 at 9:32 pm
Probably less than 1%, so we should be willing to take our chances.
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Im 35 married 2 kids 8 and 5 and a state employee i make 64000 a year. My pension will cover 66% of my pay @55. I have a option to buy 5 years of service for 40,000 @180 payments of 360.00 and that will boost my pension to 76% @55 or 99% @60. I only have 6500 in my 401k. Do you think i should buy the 5 years or put the extra 360 into the 401k. The option to buy the 5 yrs will expire in 30 days and i will not be able to reapply. Also how much should i be contributing into my 401 based on thees figures.
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Financial Samurai Reply:
March 29th, 2013 at 5:45 pm
I generally wouldn’t buy anything or pay more than necessary. Instead, I would gut it out. That said, I have no experience with pensions as I don’t have one. Look at your pension as bonus money and try and save extra.
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I am 42 married with three kids all under 4. I just re-financed my house at 2.75%. It was appraised at $1.5M and I owe $500K (I have no other debt). My 401(k) is $415K, my IRA is about $30K, we have about $50K in stocks and I’m contributing $10K per child per year for 529c’s (currently $75K total). I also own a beach condo outright worth $300K. I am very concerned that the stock market is over-valued and about to crash — should I be putting all money towards paying off the remaining $500K mortgage balance before putting any more into the market? Also, how do you suggest balancing my 401(k) between Fixed Income, Large Caps, Small/Mid Caps and Int’l Equity?
[Reply]
Hi,
Just checked out your site to see where I fall- yikes! I am 30, married, and my husband and I both went to grad school (he went full time after a layoff- so a solid 2.5 years of no job for him, I went part time at night but still have loans) and are paying off a massive amount of loans at a decent clip- but this limits how much we can sock away each month. We pay $2500 each month in loans plus we add about 1/3 of any bonus money towards the loans, and have slowly started the whittle them down over the last 2 years. Since some of my husband’s loans are quite high interest, we feel that those need to be addressed first.
My husband maxed out his 401K this year and came close last year, while I had been temping and unemployed for about a year. I had a Simple IRA from an old job that I rolled over to a traditional IRA, and I have $26,000 in there. I started a new (awesome!) job a few months ago and have sacked away $2500 in 2 months (to a 401k). We also have $21,000 in savings (I have some health problems and feel more comfortable having easily accessable funds if needed).
My father has let me know that there is a 403b of his that will be left to me with about $330,000 in it. In my mind, I know this should stay as a retirement plan for me when the time comes, but it is hard to know how to plan with that amount just hanging out there.
As a background, last year we dumped almost $50,000 into student loans, and about $35,000 rent/utilities. We maxed out our pretax health savings account and used it all. And then some.
Not sure where else we can cut to increase retirement savings- I aready cook all of our meals- we bring breakfast and lunch to work, and eat dinner at home with a rare meal out here and there.
But this is terrifying- I should have quadruple what I have at this point. What do you suggest in terms of financial imortance? In my mind, we should address the loans first and put a reasonable amount into our 401ks……thoughts?
[Reply]
Financial Samurai Reply:
April 8th, 2013 at 2:41 pm
Hi Allie,
Welcome to my site! Always good to have new readers. How did you find me by the way?
I wouldn’t worry too much about being only 1/4th of the way to where I think you should be for your 401k amounts because:
1) You are still only 30 years old.
2) You guys paid down $50,000 in student debt which is HUGE, no matter how much you guys earn combined
3) You are making an effort to save more and ge a handle on your finances.
I’d raise your savings rate by 1% every month until it hurts. Once it stops hurting, raise it again another 1% or more until it does and repeat.
I would also highly recommend you and your husband sign up for Personal Capital, a free wealth management tool that let’s you get a handle on your finances. You can’t optimize your finances if you don’t know where everything is! You can also check out my review here.
Best,
Sam
[Reply]
Allie Reply:
April 9th, 2013 at 9:10 am
Thanks for the reply. I just did some google searching for a guide regarding how much one should have put away by certain ages. I do think we are on track to catch up.
I am only putting 9% in my 401K (with a 3% match), husband is putting 10% in his (with a 6% match). We then put another 10% of our monthly take home into savings (emergency fund, future down payment fund), and pay about 28% of our monthly take home to student loans (which mostly go to interest!). About 43% of our take home goes to rent, utilities, groceries, and insurance (other than medical). I am looking at just bumping up my 401K constrobution at this time, but wonder if it is wiser to use some savings and extra percentage in investments instead (and start to build that portfolio).
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I love the advice I was given similar advice when I first started in banking 22 years ago. My first year out of college I made $28,000 and was able to put 6000 of which my bank matched 2000 for a total of $8000 in my 401(k). I was lucky enough to have a highly leveraged job which paid very high incentive and after 22 years my 401(k) has ballooned to just below $1 million. This was not done by accident I found a very similar path to your advice every year increasing to Nalick 44 years old I put about 20% of my own money and my employer matches 6%. Great advice for those just graduated from college save as much as you can it will pay off later in your career.
[Reply]
Financial Samurai Reply:
April 11th, 2013 at 5:21 am
Crazy how time, consistency, and compounding adds up to one nice financial nut doesn’t it? Once the nut is big enough, you don’t have to work as long, as hard, or at all in a bull market. Congrats!
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Sorry about my grammar above. Used vocal text
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I went through a costly divorce almost 10 years ago. All of the early strides and financial success went with it.
I have since remarried and we have been able to pay off our home. I was looking at your 401k scale and I am a little concerned. I am 43 and only have 150k in my 401k. I am also paying child support (lots) and putting money aside for the kids (3) education.
I am currently contributing about 12k a year to my 401k, but not sure how to do more than I am doing. Bonuses and big raises are a thing of the past or at least for the time being.
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This is not bad advice certainly, but utterly unrealistic for most young people today. We graduate from college with student loans and go to work at jobs where we’re lucky to crack 30K per year. I work for a financial institution and closely with several financial advisors, and here is what you should take from this:
1.) Nobody in the United States, and especially if you don’t live in NYC, SF, LA, or Chicago, needs 100,000.00 per year to live comfortably. Most young people, even with bachelors degrees and up, won’t make the inflation-adjusted equivalent of that any time soon if ever in their lives, and you don’t need that kind of income when you retire unless you are an obscene over-consumer.
2.) The key here is to start putting money into a 401k by age 25, even if it’s fifty dollars per month, even if you are barely making ends meet. Always, always, always take advantage of the maximum 401k match if your employer offers it, and contribute to a 401k even if there is no match. The money you have contributed before age 40 matters far more than the money you contribute late in you career when you “can afford it.” Under normal market conditions, a person who contributes 50,000.00 between the ages of 25 and 35 and never adds a penny again will retire with a similar 401k balance to a person who contributes 5,000.00 per year from age 35 to 65 (150,000.00 total). It is THAT important to start early.
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I agree with everyone, saving and making money is one’s choice. No one can force it on you. I am definitely of an opinion to save as much as possible so that I retire rich :)
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Thank you for the wonderful article. I came across your site just today when I was discussing 401K balances with friends. It is refreshing to know that I fall within your acceptable range. At 47, I have more than $1.2 million in my 401K. What I consciously did when I was younger was to contribute the max to my 401K and invested it in equities (100%). When the market went sour a few years ago many friends withdrew their money and put it in cash. I stayed the course and I am glad I did. Since my portfolio now generates over $200K per year (I don’t have any expenses except gas – I have solar installed, insurance and basic necessities) I have decided to call it quits and just travel. Although, I can always fall back on my Finance degree if I ever need to go back into the workforce, I sure hope that my budgeting for years have paid off. It is interesting that former co-workers always made fun of me when I turned down their happy hour invitations. Now, I think they are thinking differently. Thank you again for the article.
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Financial Samurai Reply:
May 5th, 2013 at 7:05 pm
Hi Jai,
No problem and nice to hear from you. Nice job saving early and often! Life is too short to slave away all day, especially if you have the means to support yourself.
Before I retired from corporate America last year, I decided to sign up with Personal Capital, a free wealth management tool online that keeps track of my money and sends me notifications of my net worth. With a $1.2 million 401(k) balance, I HIGHLY recommend you sign up, run your 401(k) fee through their 401(k) Fee Analyzer and see where you can optimize. I am now saving $1,700 in fees I had NO IDEA I was paying! I have a feeling you are probably paying over $5,000 in fund fees a year.
Best,
Sam
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Jai Reply:
May 5th, 2013 at 7:50 pm
Hi Sam,
Thanks for your reply. My money is actually being managed by Vanguard and your point about fees is something I am going to look at. Because my portfolio is over seven figures, I am considered a flagship client and management of my assets should be considerably less than investors with less than seven figures.
I truly enjoyed your articles and I will be sharing them with friends. There is a saying that it is not what you make but what you save. I am not sure who came up with that but I hold it true to heart.
Thanks,
Jai
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