Financial Samurai

This is very timely given my post today about not investing! I don’t have a 401K since I have never worked at a job that allows for one (although I do work at a nonprofit now and could fund a 403b). I do fund IRAs, and at age 26 I’m only slightly below where I should be according to your chart. If I had delightedly invested and followed your strategy since age 22, I know I’d have at least as much as your chart indicates.

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Financial Samurai Reply:
January 9th, 2012 at 9:41 am

Hi Jeff,

Thnx for sharing. I have a feeling there will be a proportionately higher amount of people under 35 who say they are below these ranges, and a disproportionate amount of 35+ year olds who are at the high end or above these ranges.

Save and invest like a banshee!

Sam

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I’m 46 and have have $398,820 in my 401K. I started when I was 25 years old and have maxed it out every year. In many of the years my employer maxed the contribution at 10% of my salary not the IRS limit.

I just calculated my return for the past 20 years and was a measly 5.1% compounded growth – no where near the 15-20% growth I was getting in the 1990′s. I thought I was going to be living on easy street in retirement in the 1990′s with the returns I was getting!!!!

I’m probably saving about 15% of my income after my 401K contributions. However, I’m also paying down my mortgage debt which is not included in the 15% number. My mortgage interest rate is low – thus paying it off might not be the best thing to do financially BUT, it allows me to sleep better and thus that is what I’m doing.

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Financial Samurai Reply:
January 9th, 2012 at 7:26 am

Not bad Dave! You’ve fallen right in-line with the chart, and with the 5% compounded growth assumption that I used.

If you can keep going, and then retire mortgage free, that will be great.

How much longer do you plan to work?

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David M Reply:
January 9th, 2012 at 8:13 am

How long do I plan on working? – At least until I think I have enough money to have plenty of $$$ in retirement. Thus it depends on the returns I get on my 401K and other investments. Only time will tell. It is definately longer than I thought in the late 1990′s!!!!!!

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Financial Samurai Reply:
January 9th, 2012 at 9:42 am

Indeed! Worker for life until death!

retirebyforty Reply:
January 9th, 2012 at 9:23 am

I am almost 40 and I’m at the low end there as well. I have contributed the max since I was 22, but the stock market did not do well at all since 2000.

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Financial Samurai Reply:
January 9th, 2012 at 9:45 am

Hopefully company match and profit sharing has helped keep the IRR return above 0% since 2000 though?

Do you plan to just do the solo 401k once you retire at 40?

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retirebyforty Reply:
January 9th, 2012 at 10:09 am

Our net worth is not bad because we kept adding money.
I plan to do the solo 401k. It might start off slow, but I will try to increase the contribution if I generate good income from self employment.

This is great as a way to really challenge yourself. Based on your chart, I am in the range for my age, but this is after some years of a generous company match (but also includes a couple of years off for b-school).

I know you have a younger audience on your blog, but as someone in their early thirties, I remember my first years of working when contribution limits were much lower thank $17k. I want to say they were $10k or $12k as a limit and I also remember a limit of 15% of your total income, so there were years when I was starting out when I couldn’t even get to the max because my salary was so low (now I believe you can contribute something like 70% of your income up to the max of $17k).

My point is that the lower end of the ranges are probably pretty high, especially for someone who is currently in their 30s or 40s. And as David M pointed out- returns have been pretty awful.

Thanks for the reminder that I need to be saving a good chuck of my income above and beyond what I have in my 401k!

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NoTrustFund Reply:
January 9th, 2012 at 6:58 am

This is the best I could find based on 30 seconds of searching:
http://answers.yahoo.com/question/index?qid=20071126171018AAd0DCG

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Financial Samurai Reply:
January 9th, 2012 at 7:08 am

We’re looking ahead, which is why I cap the assumption at $17,000 a year for the rest of one’s working life to be conservative. I realize that past maximum contribution levels are lower. But again, the article isn’t really to help those in their 50s and 60s, as much as it is to help those who still have 20+ years of work to do.

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NoTrustFund Reply:
January 9th, 2012 at 7:17 am

Yes, always best to look ahead! I just don’t want anyone who is 30 to be too
discouraged if they are not yet at $127k. Thanks again- great post.

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Financial Samurai Reply:
January 9th, 2012 at 7:25 am

Cool, although the chart isn’t mean to make people feel good about their progress. The chart is meant to be neutral and simply “a matter of fact”.

If a 30 year old only has $127,000 after 8 years of work in their 401K after all the company matching as well, they are at the lower end of what they should have, and it’s still not enough as the conclusion states.

I do hear what you are saying on maybe the younger folks on this chart being less in the range. More knuckleheads at this age, with excuses like I don’t make enough, I need a car, nice clothes, yada yada yada :)

So first you say to max out your 401K and then you say to expect the rules to change and that it is likely that you’re not going to be able to get at the money when you need it? This really does not make a 401K sound like a rational way to save for retirement.

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Financial Samurai Reply:
January 9th, 2012 at 7:22 am

Mentally write it off and expect it to never be there. It probably will, b/c there would be a mutiny in America and it’s illegal, just expect the taxation rules to change for the WORSE not for the best.

The goal is to get people thinking about saving AFTER they’ve maxed out their 401K and rely on their own.

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Sam,
It seems to me that your posts are geared towards people who make a crapload more money than I do. Maxing out my 401k at this point would be close to impossible, especially given my current debt. That max contribution is more than half of my gross income. Any practical advice for the little guy?

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Financial Samurai Reply:
January 9th, 2012 at 7:46 am

Hi Rachel,

Without knowing your age, education and debt level, I can’t provide specific good advice.

The answer is likely to make more money because if you stay at $35k/year and don’t have a pension, life might be very difficult in the latter years since Social Security doesn’t cut it.

The more you share, the more I can suggest.

Thx,

Sam

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Rachel Reply:
January 9th, 2012 at 1:27 pm

Sam,
I’m 28 with a BA in the most useless subject known to man for attempting to make money, and I have approx 30k in debt including car/student loans. It breaks down to living expenses on 1 check and debt on other with a little bit left over for my 401k, which has about 15k or so in it after the hit i took from being laid off and losing the unvested employer match in the middle of our economic implosion a couple years ago. I’m contributing currently and will up my contributions another 1% next quarter (missed deadline for this quarter). Obviously earning more would be ideal. Even a monkey at a keyboard can figure that out. I’m not convinced going back to school for a master’s degree would be a great idea due to expense as well as personal preference. I hate what I do. I know I need to save more. My point was not advice for my personal situation, but advice for people who are not high earners with great corporate jobs with bonuses and stock options. It seems like most of your articles are assuming your readers make this great money and don’t take into account that there are tons of us trying to be financially responsible on less than half what you’re working with.

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Financial Samurai Reply:
January 9th, 2012 at 1:55 pm

You left out your income.

Have a read in making more money: http://www.financialsamurai.com/2010/10/03/how-to-make-six-figures-income-at-almost-any-age/

I am a monkey and I started started this site in the summer of 2009. This site has now allowed me to retire in just under 3 years if I wanted to. What’s the point? Even a monkey like me can make more money, so you should have no problem.

This site is not focused on financial mediocrity. It is up to you to decide your financial future. There are hundreds of OF. Logs that are geared towards a larger majority. Or go read Kiplinger’s or a publication like that.

Rachel Reply:
January 10th, 2012 at 7:16 am

Income as stated above was less than double the 17k. More specifically it’s about 32k. I’ve read that article Sam. The monkey comment wasn’t directed at you. Obviously you’re doing well and worked hard to get there. Why do you think I keep reading this site? I could talk to monkeys sitting at keyboards all day long, but obviously it’s better to interact with someone who is successful. I’m just trying to understand your mindset. Do you have advice for the transition between mediocrity and greatness?

Financial Samurai Reply:
January 10th, 2012 at 7:53 am

Perhaps a good strategy for you is to calculate the difference between 17k and what you are pretax contributing now, and aim to make more by that much money.

This way, it doesn’t seem as daunting. Make sure that whatever money you do make extra gets saved either in the 401k or other account. Make that your mission for 2012.

My mindset is basically “I can’t believe I have a normal functioning brain and body and live in America. If I can’t make it here, then I might as well shoot myself because there are billions less fortunate who would kill to just have this chance.”

Hi Sam,

My company offers a Roth 401k, which I contribute 7% to with a 4% match. I also max out my Roth IRA each year, but I’m wondering how these figures translate to Roth accounts because I don’t invest any money pre-tax. I’m 26 and make 45k/yr and I feel more secure with post-tax figures. Any feedback?

Thanks,
Jenn

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Financial Samurai Reply:
January 9th, 2012 at 9:49 am

Hi Jenn,

If the 401k is a pipsqueak, the IRA is the pipsqueeks’ pre pubescent son. It’s horribly inadequate.

Contributing post tax dollars is better than contributing nothing, esp given no taxation of gains upon withdrawal.

However, what’s more important is the amount. 11% x 45k = $5,000 a year. Better than a punch in the stomach, but not enough to live off in retirement. Play around with the calculator in the post.

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Jenn G Reply:
January 13th, 2012 at 7:04 am

Thank you for the feedback. My question is what would the guidelines for after tax retirement balances be? 5,000 post tax is greater than 5,000 pre-tax, and I’m trying to figure out what my goal range for age 30 should be in after tax dollars.

A little about myself: I started saving for retirement at 24, i’m now 26 and have $20k saved (Roth 401K and Roth IRA) on a 45k salary. I save a total of $10K/year (5,000 IRA + 5,000 401K). I know I’m behind but I’m trying to compare apples to apples here to see just how far behind.

Because my salary is low and it’s so early in my career I went with Roth accounts, but sometimes I question whether I should diversify by contributing to a traditional 401K (my company offers both) instead. I hope to be making a much higher income in the future but nothing is certain.

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Financial Samurai Reply:
January 13th, 2012 at 7:15 am

You can take the pre-tax numbers and multiply them by roughly .70 to get a more apples to apples post-tax dollar amount if you wish.

Hmmm…so if:
1.) I shouldn’t expect to see my money come back to me until I’m 80 some years old, and
2.) I don’t want to work until I’m 80

…then it doesn’t make much sense in my mind to be putting all that I can toward a 401(k). Why not put (assuming a $17,000 yearly contribution), $9,000 per year toward a 401(k) and $8,000 per year toward a non-retirement investment account so that if I do want to retire at 65, that I’ll have plenty of access to funds?

Sure there are implications of investing after-tax money, but I’d rather pay for the privilege of having a nest egg to get me through the 15 years of living I’d like to do before those 401(k) and IRA payouts come.

Or am I missing something?

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Financial Samurai Reply:
January 9th, 2012 at 9:56 am

Leah,

Yes, you missed the point. Instead of investing the $8k in a “non retirement” investment account after just 9k in the 401k, that money should go into the 401k to max it out and THEN take your $8,000 after tax and invest it.

Our money should be there unless we are taken over by a Socialist Dictator. Mentally writing off your 401k is a conservative way to force yourself to save more in after tax income on your own.

Sam

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Leah Reply:
January 9th, 2012 at 11:47 am

Definitely won’t have an extra $8,000 to throw around after maxing out the 401(k), that’s for sure. If you can do it, that’s great. But if you can’t, I don’t think that it will make-or-break retirement.

If my spouse and I max out our Roth IRA and 401(k) contributions, we will have saved roughly $44,000 per year to that endeavor. Assuming we save for 40 years, that the contribution levels never rise, and that we yield 5% over time, we’ll have a nearly $6M nest egg WITHOUT the extra savings.

And then we get back to whether we can even access that money, as you predict, until we’re 80. I certainly won’t need the full $6M after 80 years old, but it would be really nice to have part of that growing outside of a retirement account, so that I could have $3M to retire on before the retirement accounts mature and $3M after (roughly).

Does that make more sense?

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Financial Samurai Reply:
January 9th, 2012 at 1:09 pm

Leah, you’re comparing apples to mangos.

The chart above is for individuals, and the theme is to trust nobody but yourself to max out and save more.

You should do what you feel comfortable with. If you decide to split the 17k btwn 401k and non 401k investments, that’s fine. Just be careful with your investment assumptions as history has showed we can lose money too.

A long term marriage with 44k annual savings for the long term sounds good. Yet, will $6 million for two people really be enough to live comfortably by then? I’m not sure, hence the suggestion to save even more.

Sam

34 years old, $345,000 in 401K after 12.5 years of working. I’ve maxed it out every year since 23, and plan to do so for as long as I work. I think your charts are pretty realistic, to account for the ups and downs of the markets.

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Financial Samurai Reply:
January 9th, 2012 at 10:07 am

Excellent datapoint. Thanks for sharing!

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Most people under 25 can’t contribute that much to a 401(k). Most don’t make $70,000 a year, and even then, there are student loans (and sometimes credit card debt) to pay off at a higher than 5% interest rate.

Not all retirement investing must be done in a 401(k). I would suggest more of a gradual increase, $5,000 a year for 2-3 years and then increasing. Then, when you can afford it in 30s and 40s, just invest an extra $5,000 a year in an IRA and you’ll make up for lost time.

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Financial Samurai Reply:
January 9th, 2012 at 10:10 am

Good excuses, love them! Throw in a car too!

How does one contribute to an IRA in their 30s and 40s to “catch up” when the government doesn’t allow people making over $110,000 a year to contribute?

Why fall behind to catch up when you can keep up or zoom ahead?

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Daniel Reply:
January 9th, 2012 at 11:40 am

How can people afford to contribute $17,000 a year if their total incomes (before taxes) are at $50,000? Even I would not have been able to do that in my 2nd year out of college had I not started a successful side business.

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Financial Samurai Reply:
January 9th, 2012 at 12:01 pm

You can’t live off $33,000 a year, which so happens to be the middle 50% of income earners in America?

Come on now. $33,000 is the top 1% in THE WORLD!

Please share more excuses.

Daniel Reply:
January 9th, 2012 at 12:20 pm

It’s possible, but why would you want to live off $33,000 a year just to have $130,000/year in retirement? I think there’s a much better balance. What I’m doing seems to be working well, don’t you think?

Also, if you think that $17,000 is the right amount for someone making $50,000/year, what about someone making $40,000 or $30,000? Surely they can’t afford to put away that much.

There is no one-size-fits-all. People who get a masters degree can’t even start working until they’re 25, so they’ll need to catch up later in life. And with two incomes in most families, $8,500/each should do the trick. No need to go crazy with this at a young age. Do what you can, everything will work out in the end.

Financial Samurai Reply:
January 9th, 2012 at 1:13 pm

I guess I don’t believe “hope” and belief everything will work out in the end, is a good strategy.

There definitely is no one size fits all. Depending on where you live, $33,000 is enough to provide any 20-something year old enough to live a happy life.

In fact, savings itself gives pleasure to many people, including myself because it’s fun!

EEeek, I have some work and catch up to do Sam. At 34, I’m not even close in my 401K…

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Financial Samurai Reply:
January 9th, 2012 at 11:29 am

Get cracking Jeremy! If not for you, then for your family!

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I am way behind, but with my better half we should be close to the minimum for our age. But because of this post I’ve decided to double my contributions. :) I’m also working towards a pension – one year left to qualify.

One thing you’ve neglected in your calculations is that one will still accrue interest after retirement and therefore one should have slightly more money to spend per year. The value I calculate with 5% interest with 20 years to live is $55k per year starting with $723,000 and $200k starting with $2,618,000.

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Financial Samurai Reply:
January 9th, 2012 at 1:17 pm

If you got a pension, kick back and relax baby!

5% interest? Where?! Hook a brother up!

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the estimates seem reasonable to me. there are other investments as well that i hope most are considering parallel to the 401k plan, such as high yield CDs, bonds, precious metals, IRAs, etc. to look at any one in isolation does not represent how well/poor one is doing in my opinion….but the factual table above is interesting nonetheless…

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Financial Samurai Reply:
January 9th, 2012 at 12:04 pm

Agreed. The 401k is just one of many income streams/retirement buckets one should have.

We’re just focusing on this for now.

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So where am I supposed to be if I started working in the US only ten years ago? I eyeballed the table and of course I am not even on the lower end of my age. I guess I should just look not at age but at total years worked, right?

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Financial Samurai Reply:
January 9th, 2012 at 1:10 pm

You can choose the number of years worked as a barometer, however, our mortality will catch up to us, hence why age is important too.

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I dont even have a 401k currently – I’ve got a pension through work (i’m lucky, I know, and my state’s is _not_ underfunded like most) and my roth IRA. I’m hoping to be able to increase my side income enough to open a SEP-IRA for my side hustle to save more for retirement, though I’m also considering alternate ways.

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Financial Samurai Reply:
January 9th, 2012 at 1:14 pm

You definitely are lucky! Just don’t count on it still being there in 10 years or when you retire. Hence, save like a mad man on the side.

Do you still get your pension if you quit early? Ie how many years do you need to work in order to get it?

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You can never have too much saved! There are so many elements that can exhaust your savings such as illness, medical insurance costs and how long you will live. Multiple income and multiple retirement are the way to go.

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Financial Samurai Reply:
January 9th, 2012 at 1:15 pm

Spoken like a true veteran. No excuses!!

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We always maxed out our 401K contribution up to the point where the employer no longer matched. After that we saved in a savings account and invested in some stocks. Altogether we were saving/investing about 40% of our income. We thought we were doing pretty well until the market tanked and cut our 401K in half. Some of it has come back, but not nearly enough. We were on track to have saved a million by retirement and ended up with about half that. My husband was forced into early retirement at the age os 62 and was not able to find another job. I had stayed home with our kids, but did some substitute teaching to supplement our income. Then I got cancer & could no longer work. That was about the same time my husband was forced into retirement. It was lucky in a way as he was able to take care of me until I recovered. We are fortunate to have a decent pension from his job and have not had to dip into our 401K yet. Your advice sounds good to me. Saving all you can is important, especially if you don’t have a pension as many don’t.

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Financial Samurai Reply:
January 9th, 2012 at 9:23 pm

40% is great! The 2008 downturn was such a doozy.

I hope your cancer is in remission Maggie! I’m glad you still have at least 500K and a pension. That is a great combo. So many folks don’t have a pension, let alone the 500K.

Best of wealth to you two! Hope your hubbie is enjoying retirement. Why not! Life is short.

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Maggie@SquarePennies Reply:
January 9th, 2012 at 10:43 pm

Thanks. I’m in remission for over 8 years so that’s as close to being “cured” as it gets. We are lucky to have the pension and are lucky to be able to live off of it. We even end up saving money on it. We have enough for travel and helping out our grown kids as needed. All in all we came out ok, even with the downturn. I sometimes wonder if I should have worked full-time, but the kids turned out really well, so it seems to have been a good decision to stay at home with them.

Yes, my husband enjoys retirement as do I. Thanks for all your good wishes and I wish you the same! Life is an adventure!

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Financial Samurai Reply:
January 10th, 2012 at 10:27 am

Really wonderful to hear Maggie!

Maggie@SquarePennies Reply:
January 10th, 2012 at 10:45 am

Thanks, Sam! Every day is a gift!

The reality is, we need to re-evaluate how we think about retirement. 401s (or in Canada RRSPs) are great tools but we can’t think of them as THE solution. When we were retiring at 65 and dying at 75 maxing out our contributions through our working years would be plenty to retire on.

If we intend to keep our current standard of living through out retirement we will be forced down one of three roads

A) Cut back on expenses and save more now
B) Work longer
C) Invest wisely to generate income into retirement. Through moderate to high yield stocks, income from blogs, rental properties or some other means of income. Ideally this income comes in one of two forms – passive or close to passive income or doing something part time that you actually enjoy.

Based on your last post on 401s I anticipate most will be choosing option B.
Best,
Dan

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Financial Samurai Reply:
January 9th, 2012 at 9:24 pm

Working longer definitely seems to be the easiest option, fortunately or unfortunately. One year work is like a TWO BANGER.. as that’s one more year to save, and one less year you need to draw from your savings/401K/retirement accounts.

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Some comments.

I don’t have a retirement account within my company. I should create one though.

That’s not to say I don’t have investments in retirement accounts myself (my wife has the major part of our retirement accounts though). We are way ahead of the game with your estimations and do think they are good guide for anyone.

In agreement with my accountant he’s suggesting having a matching amount of taxable investments to our retirement accounts since they are much more liquid and flexible. There are taxable investments that are efficient.

The last issue is it can be assume taxes will be higher then they are now, so while 401k and 403b are tax differed they, are not tax free.

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Financial Samurai Reply:
January 9th, 2012 at 10:28 pm

Thoughts on creating a SEP 401K?

When you say “we are way ahead”, are you saying you guys are way ahead of DOUBLE the range for your age in the charts since it’s per person? If so, share your strategies. thx!

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Investor Junkie Reply:
January 10th, 2012 at 6:09 am

Yes, saved early and often.

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Financial Samurai Reply:
January 10th, 2012 at 7:20 am

Awesome! Then I won’t fill guilty winning the $500 off you when Obama wins! :)

Why do you think all those who disagree with the chart are under 33 years old and all those who accept or agree with the chart are older than 33?

Investor Junkie Reply:
January 10th, 2012 at 6:09 am

SEP 401k is one option.

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Investor Junkie Reply:
January 10th, 2012 at 8:56 am

Why? Wisdom as you get older. Poor performance the past 10 years. My wife and I started investing during the big bull market.

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Investor Junkie Reply:
January 10th, 2012 at 9:06 am

Just to be fair, I’m also including IRA and rollover IRA accounts in our calc. Not just 401k/403b accounts.

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Financial Samurai Reply:
January 10th, 2012 at 10:26 am

Ok, bc roll over IRAs can be huge.

What about like for like, just 401k?

Investor Junkie Reply:
January 10th, 2012 at 8:40 pm

solo 401k is different. I would ask your account which you should do as they would know your completely financial picture and your biz structure.

Telling post Mr. Sam.
I’ve been working a little over 3 years and have $25K in my 401K equivalent.
It’s even more frustrating here in Canada because our contribution limit is only 18% of our previous year’s gross income, up to $22K. But for most people making $30K-$60K annually, that allows us to save a maximum of about five to ten grand a year into our retirement account, not nearly as much as I would like, so I’m subsidizing my retirement portfolio with my Roth IRA equivalent (TFSA) and other accounts. I wish they would make it easier for us to save. Especially for workers without a generously funded pension plan. I also wouldn’t mind if individuals could voluntarily opt out of social security programs at their own risk.

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Financial Samurai Reply:
January 9th, 2012 at 10:27 pm

I feel your pain about the pathetically low limit we are allowed to contribute to our retirement savings pre-tax. Thanks for sharing your perspective in Canada.

At least your health care is cheap and good!!

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Yay! I scrape in = just over 9k at 23. Granted, that includes a nice boost in the government Kiwisaver kickstart and tax credits (which sadly are being halved).

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Financial Samurai Reply:
January 9th, 2012 at 9:25 pm

Whoo hoo! Good stuff and keep up the good work!

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The best reason to max out a 401k, in my view, is the bankruptcy shelter and other protections you get for funds in a 401k or pension. In my state, I could go absolutely broke to the point of bankruptcy and not a single creditor could touch a dime in my 401k. IRAs are the same way in some states, too.

So, as long as you don’t lose your 401k balance to the market, there’s really no way to ever lose it.

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Financial Samurai Reply:
January 9th, 2012 at 9:25 pm

JT, you are a smart smart chap. BINGO! I didn’t think about this huge benefit, and I’m glad you brought this up. Excellent point!

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Maggie@SquarePennies Reply:
January 9th, 2012 at 10:53 pm

I like this benefit of keeping money in a 401K, not that I’m anticipating bankruptcy. When my husband turns 70 he is required to take the money out of the 401K. Are there any other places to put that money that are also safe in case of bankruptcy? We’ll need to roll it over in about a year and are looking at various alternatives.

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JT Reply:
January 10th, 2012 at 7:03 am

Depends on the state. IRAs are protected in some, as is home equity in other states (and to differing degrees.) Also, whole life insurance tends to be a product that is very much sheltered from bankruptcy, lawsuits, and even divorce.

This is one of those things where I’d consider going to a fee-only wealth management firm for a CPA and CFP or CFA combination. Sure – they’re going to cost a minimum of $200 an hour and maybe a thousand bucks for the whole deal, but I bet you could get a little tax strategy help, some unbiased examinations of different investment options, and probably even work out very solid wills and potentially plans to pass assets onto kids/other family members in the most tax-advantaged way possible.

The tax strategy alone will probably save enough to pay the fees twice over. The other benefits are just the icing on the cake.

Investor Junkie Reply:
January 10th, 2012 at 6:13 am

Also legal protection (ie being sued).

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Maggie@SquarePennies Reply:
January 10th, 2012 at 10:44 am

Thanks, JT and Investor Junkie. Very good points. I’ll be looking at that soon!

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I’m a tad below the low end for my age. But I like the alternatives like Roth IRA (lower fees and better selections), real estate investments (alternative asset class, much higher returns than equities are anticipated to return either based on historical returns or based on current valuations) and I also think I’ll be paying a much higher tax rate in the future than presently, so I prefer to take the tax free income later rather than tax deductible contributions now. Additionally, I’m putting quite a bit toward 529s each year which not everyone does. Overall, I’m luke-warm on my 401(k) as a retirement vehicle but like the multiple streams of income approach rather than focusing too much on that one vehicle.

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Financial Samurai Reply:
January 9th, 2012 at 9:26 pm

I agree w/ you on the multiple income stream. Why not just max up your 401K too though as one of the income streams?

I definitely don’t think most people will be in the same tax bracket in retirement as now. To generate passive/semi-passive income to equal our current working income would be brutally difficult!

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Investor Junkie Reply:
January 10th, 2012 at 6:21 am

While we have money in a 529 they unfortunately count against ya for financial aid, retirement accounts do not.

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I stopped contributing to a 401k since age 33 since there was no plan available while working overseas. So my 401k balance is just under half of the low end figure for a 40 year old. But I’m killing it in after tax savings so am not too worried.

-Mike

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Financial Samurai Reply:
January 9th, 2012 at 9:27 pm

Share with us how much if you may!

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Mike Hunt Reply:
January 10th, 2012 at 9:23 pm

401k balance is $135K at age 38…

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I am below the low end for my age group, but I am contributing all I can now. One of my former employers didn’t have a 401k program so I opened an IRA at that time. I don’t contribute to it anymore though and focus on my 401k instead. Employer matching really makes a difference.

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This is silly fantasy talk. 66% of wage earners in the us make less than 40k / year. 50% make less than 26k. I can tell you right now that the vast majority of people in this country will never come close to these out of touch goals.

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Financial Samurai Reply:
January 9th, 2012 at 10:39 pm

Really? According to the IRS and my post, 50% of US wage earners make more than $33,000.

http://www.financialsamurai.com/2011/04/12/how-much-money-do-the-top-income-earners-make-percent/

If you want to work for longer, that’s up to you. I want to retire earlier than age dead.

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JK Reply:
January 10th, 2012 at 6:58 am

My figures are from Social Security Administration data based on W-2
forms submitted by employers to the Internal Revenue Service. It has
been widely reported. (http://goo.gl/SdGbo) The exact number is
$26,364, though arguing between 26k and 33k is silly.  Basically your
advice to more than half of the working population is to put their
entire year’s net income into a 401k. You obviously have no comprehension of
reality. The least you could do is be clear to your readers that the recomendations you are making are geared towards a small minority of upper income earners.

And please save your “if you want to work longer that’s your business” garbage. No one wants to work forever but the majority of Americans have no choice.

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Financial Samurai Reply:
January 10th, 2012 at 7:10 am

I’m sorry if you do not believe you can make more than 26-33k a year.

And I’m disappointed you think that contributing to your 401k is with net income. You can contribute up to 17k pretax this year and then with after tax/net income up to around 49k total for all contributions.

Believe in yourself, or not.

The Genius Reply:
January 10th, 2012 at 8:42 am

The 17K contribution to 401K is pre-tax income. You believing it’s with net income concludes why you do not believe.

jk Reply:
January 10th, 2012 at 9:17 am

I’m aware that contributions are pre tax and you are again deflecting the point. Please explain how half of all americans are going to retire when they make less than 30k a year considering living expenses eat up all of their income. You won’t explain because you can’t and you could care less to even try. Your reply to 100+ million people is “work harder” and “believe”? Your class’s day is coming and we will take great pleasure in your demise. You have no real life skills and will serve no purpose to society once it comes crumbling down around you. We’ll see who is successful and self sufficient when you have nothing and the tables are turned.

Financial Samurai Reply:
January 10th, 2012 at 10:02 am

If you knew, why did you write 17k contribution of net income?

The fact is, if you are stuck earning only 33k a year, you will have a difficult time retiring and will likely have to work for much longer than average.

You can always move overseas to a lower cost of living country. I feel your anger, and I’m sorry you feel stuck making your income. Maybe Obama can redistribute more wealth and provide more benefits to lower income earners when he gets re-elected.

I’d direct your anger towards improving your income.

Solomon Reply:
January 10th, 2012 at 1:41 pm

In my 20s, I made $50,000 on average and put away $15,000 a year on average. I didn’t make any excuses, and am glad I did.

Maxing out your 401k every year is mathmatically completely rational. The wonders of accrued interest etc. However there are a few things you are not considering.

1. Time has value, especially when you are young enough to truly enjoy it. Those extra hours most americans will have to spend working to max out their 401k will cut into time with family, friends, leisure, and all those wonderful moments where you think ” Wow I’m glad I was here for that”

2. Most “frugal” people I know focus so much on saving to reach a certain goal or to follow a certain pattern that they neglect themselves. So they dont go on vacation, dont buy gym memberships, all so they can live ” comfortably” at 65. Then they get to 65 and since theyve been working their asses off forever and dont know how to relax. They then spend there days watching tv at home trying to convince themselves they’re happy because they planned ahead and have this wonderful huge house to show for it even though they use only 3 rooms.

3. Almost half of American Families are in the world’s top 1%. If you save even a little you will be better off then virtually the ENTIRE REST OF THE WORLD at retirement. As technology progresses, I’d be completly ok with a one bedroom apartment with my virtual reality machine at 65. I’d rather climb the alps now instead of having an extra 20,000 dollars at 65 thinking what if.

3. Many proponents of maxing out there 401k believe it is necessary because we will have nothing else to fall back on. Like this is already a fact.

I agree The baby boomer generation will be an issue in their old age. and social security/healthcare needs to be fixed. However things should even out over time. America has consistently come back strong over the course of history. And there’s nothing like a crises to finally get Americans to make the hard decisons and get constructive things done. Families and Rich Uncles will continue to exist. As will silly older people who maxed out their 401k’s and leave all that money to their kids so they can actually enjoy life.

I personally save 5% of my salary with 100% employee match. I think this is a good balance since it takes into account the value of time and enjoying life.

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Financial Samurai Reply:
January 10th, 2012 at 10:45 am

All are fair points, and I’ve written this article in agreement http://untemplater.com/personal-finance/spend-your-money-for-you-will-die-with-too-much/

However, if you are saving just 5% of your gross or net income for retirement, I’m afraid the article I wrote will not apply to you because that’s just too little.

It’s a balance to spend and save. But 5% is like writing your name in your SAT exam.

How old are you?

Thx

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Mike Hunt Reply:
January 10th, 2012 at 9:29 pm

Hi Andrew,

I am curious of the math used in the first point #3 (listed twice) – that almost half of the American families are in the worlds top 1%. Do you mean worlds top 10%? The world is 7 billion people and 1% of that is 70 million people, even if Americans represent a higher percentage of people in the world top 1%, I’d wager that it is no more than 20% of the 70 million number (remember by population the USA is 5% of the world).

-Mike

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I spent a lot of time on my post, Why was my post deleted? I was looking forward to your responses to my arguments. I was hoping this would be an open forum. :-) please bring the post back if you can.

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Financial Samurai Reply:
January 10th, 2012 at 10:46 am

It was in pending approval, as all first time commenters generally are.

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Well, my husband and I combined are somewhere are in the lower 1/3rd for our age. However, the stock market hasn’t helped us, we barely had matching, and there was no way we could afford to max out our retirement plans early on (not to mention, 17k was not allowed 15 years ago.) We basically sacrificed retirement savings in order for me to stay home with the kiddos for many years. However, we will catch up when they are off the payroll.

By the way, my son is headed to University of Michigan in the fall. The money just keeps flowing out the door… :)

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Financial Samurai Reply:
January 10th, 2012 at 7:21 am

Congrats on Michigan! How much is in-state tuition nowadays?

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Everyday Tips Reply:
January 10th, 2012 at 10:41 am

All in, including expenses and books, they say to plan for 25k.

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Financial Samurai Reply:
January 10th, 2012 at 12:55 pm

Not too bad, especially if that includes board!

So basically about $35k in gross income is required to pay for this cost.

Everyday Tips Reply:
January 10th, 2012 at 12:57 pm

You got it. We have some money put away for college, but not enough to cover all 3 kids for 4 years of college. I want them to take out some loans anyway, but I do plan on bearing the lions share of the burden.

I agree with your overall argument that people need to be saving a heck of a lot more tha than the traditionally touted 10% and not rely on the gov. Or others.

I think your numbers cited are not realistic.
Take someone who makes 70k per year.
17k/70k (401k) is about 24% of pay.
5k/70k (IRA) is about 7% of pay.
Use the 20% after tax contribution figure cited in your post
Many people pay about 40% in taxes if your factor in all (state loc federal property social security). Some will pay more!
That leaves about 9% of pay or about 525 dollars per month for things like food clothes rent /mortgage, eating out, raising a family etc for the Earner in my example.

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Financial Samurai Reply:
January 10th, 2012 at 7:58 am

Locar,

Write out an actual income statement on someone making $70,000 and contributing 17k and 5k. Remember, 17k is pretax contribution.

Once you see the net number you see it’s enough to survive.

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Locar Reply:
January 10th, 2012 at 9:59 am

70k – 17k (401) = 53k
53k * 0.4 (taxes)= 31.8k
31.8k * 0.2 (after tax) =25.4k
25.4k-5k (Roth) = 20.4k
20.4k/12 = 1.7k per month.

From that you have to build emergency fund buy a house etc.

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Financial Samurai Reply:
January 10th, 2012 at 10:11 am

Can you clarify your 40% tax rate, and then taxing your after income again by another 20%?

With a 53k income, your effective Fed tax rate is about 17%. Add max 9% state, and you’re at 26%.

Solomon Reply:
January 10th, 2012 at 2:06 pm

Your math is wrong. You should have about $34,000 left over after 17K contribution and taxes i.e. $2,800/month.

Sam is wise to make you do the math, so you can recognize your ways. You should send him several thousand bucks for correcting your errors, learning for yourself, and changing your mindset!

David M Reply:
January 11th, 2012 at 1:44 am

Additionally,

On 53K I do not think the tax rate is going to be 40% – maybe around 30%?

Realistic Reply:
January 11th, 2012 at 9:01 am

You are not contributing 5K/month towards a Roth IRA as 5K is the max annual contribution. So subtract 5K from your January calculation, and you will have an extra 5K every month from February-December.

Also, where are you getting your figures for income tax? I understand you are over estimating on the initial 40%, but where is the additional 20% hit coming from?

After reading this blog it appears I am screwed. I guess the writer must assume that the 20 somethings are getting heavy financial support from their parents, living at home until 40 or something along those lines, because there is no feasible way for most people in their 20′s to save the amounts listed above.
Here is my personal scenario: At age 23 I was making 30K a year (how was I supposed to save 17K out of that?). By age 25 I was making 42K (pretax) contributing 6% to 401K, rent + utilities was $16K/year, and since I live in NYC the cost of living is extremely high. Now at age 27, I make 55K, rent/utilities is still 16K, and my current employer does not offer a 401K plan. I do not live a lavish lifestyle by any means, but I still find it difficult to save even a buck or two here and there.
As for my investments, for the 2 1/2 years I was able to contribute 6% (matched) to my 401K, I was able to save about 10K, however, due to the markets, I lost 35% on my investment so I am now down to 6,500. I have been contributing fairly regularly to a Roth IRA, and I should have had over 30K saved in that, but again because of poor market conditions I lost another 30% and that is now down to 23,500. So at this point, I have 30K saved towards retirement at age 27, with an additional 20K in cash and 5K in silver.
Am I screwed for retirement?

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Financial Samurai Reply:
January 10th, 2012 at 10:49 am

I don’t think you’re screwed at all, since you’ve got 35+ more years to save and invest!

55k ain’t bad. Just do the math on what you think you’ll need to retire. Perhaps change investment strategies as 30% loss for one’s entire portfolio generally shouldn’t happen if the right mix of fixed income, cash and equities is there. And if so, should rebound over time. Just contributing 17k increases your entire investments by 35%.

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Realistic Reply:
January 11th, 2012 at 9:16 am

What do you suggest I change with my investment strategy? It seems that most investments are down 30% the past year. Since I am young, I think I should be aggressive with my investment approach, since I should be able to make back any short term losses over time. My portfolio looks like this:

Roth IRA – 7.5K in Foreign Mutual Fund, 7.2K in Domestic Mutual Fund, 4.2K in Focus Fund, 5K in Money Market (too afraid to invest).
401K – 6.5K in Company Stock
Personal – 5K in Silver Bullion (physically held)
20K in univested cash.

Any suggestions to rebalancing my portfolio? Any suggestions for my uninvested cash?

Thanks for the advice.

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Mark Reply:
January 12th, 2012 at 6:48 am

I think your Roth looks pretty good. You might want to consider investing the extra 5K of money market cash into corporate bond and TIPS if you’re too afraid to invest it.

Also, in the 401K, I’d significantly reduce your company stock to only about 5% of your balance. If your company went downhill you’d probably not only lose your job but also most of your 401K balance. Make your 401K allocation similar to your Roth IRA and you’ll be fine.

Also, make sure your uninvested cash is in a high yield savings account or CD (Ally has great CD’s that charge minimal interest to get your cash out). Best of luck!

Lindsey Reply:
January 10th, 2012 at 4:56 pm

Seems pretty good, but not according to the charts, which are also, up to you to decide. Keep swinging for the fences if you have the risk tolerance though! I’m investing as aggressively as I can!

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Here is a little interesting fact: Tim Cook made $900k last year, yet only put in $14,700 into his 401k.

tech.fortune.cnn.com/2012/01/10/apple-ceo-tim-cook-didnt-really-make-378-million-in-2011/

WTH? Yes I know Tim Cook is richer than me, but it’s a no brainer to max it out since the money will not be missed.

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Financial Samurai Reply:
January 10th, 2012 at 6:54 pm

A 401K is a rounding error for Tim Cook. Using a hundred millionaire as an example is not exactly relevant for the rest of us.

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Investor Junkie Reply:
January 10th, 2012 at 8:29 pm

Then why put in any money at all?

Maxing out a 401k as opposed to just putting in $14,700 takes the same amount of time. As CEO or any VP position he could even call HR and say max out my 401k for me please and be done with it. My point at even his wealth and understanding on how to manage money, taxes cash flow effectively, even Tim made a simple dumb mistake.

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Thanks for the post. I just finished a 10 year tenure as a civil servant, and as such, I am at the low end of your chart. Now I aim to make up for lost time; the problem is that I am now 10 years old, and I lost all of that time for compounding interest, meaning I have to work even harder now to make up for it. Still, it is a challenge I feel up to.

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Financial Samurai Reply:
January 10th, 2012 at 12:54 pm

Melissa,

Your picture looks like Lindsey KNerl’s. Are you guys the same people?

Do you qualify for any pension as a civil servant?

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Linsey K Reply:
January 10th, 2012 at 7:35 pm

Haha.. no, we’re not the same people. But we blog at the same place. I should probably have the profile fixed so that my picture doesn’t pop up when Melissa comments, though. I’m assuming your system pulls in info from Gravatar?

Although, I have always wanted to be a “Melissa”. ;)

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Everyday Tips Reply:
January 10th, 2012 at 1:02 pm

Don’t know how much interest you would have gained in those ten years anyway. Looking back to the year 2000, the market was at 11,000. Of course, there were some dips, but the market definitely has not delivered the types of returns I thought we would get over that span of time.

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At 29 Years old, I have approx 23k in 401k, no where near your recommended amount.
However, I did buy a house which has appreciated significantly in value, paid for a wedding, paid off my student loans and opened a business .

I have read many of your other articles, and I applaud you for being a strong believer in furthering your education. However, how many people who earn 100k+ graduate and start earning that money by 22? I was 26 before I had my first real paycheck.

I think its very easy to put a chart like the one you put up, however, you must look at the big picture. While my 401k savings do not meet your samurai standards, my net worth is likely significantly higher than most my age (approx 650k due to real estate holdings). Having money locked up in 401k great, but this obsession of saving as much as you can also hinder your ability to build your wealth by taking risks and having your money appreciate in value through other means such as real estate or other business investing.

Live frugal and save every penny you can? That’s boring. Taking smart calculated risks and

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Financial Samurai Reply:
January 10th, 2012 at 12:59 pm

T
Thanks for your comment Josh. If you have read plenty of my articles, you’ll know that retirement savings/401k is one of many separate wealth buckets I focus on.

Check out my real estate category for example.

I’d caution you to include your primary residence in your net worth calculation. A lot of times it is an illusion and lulls people into a false sense of security. The money in your house is not liquid.

Do you have more liquid cash/investments other than the illiquid 401k money?

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Joshua Malamak Reply:
January 10th, 2012 at 4:46 pm

I do have other liquid investments, they are under my business ownership however. While I appreciate your point of view that cash is king, I still believe that it should make up a small fraction of a young person’s financial portfolio. Of course primary residence should be factored into your net worth. Despite this common trend of fear of the housing market, some markets are still appreciating, and have not been affected by the crash (or very minimally affected). I purchased my Boston area home in 2008, and while various markets were crashing, ours continued to appreciate modestly.

Someone famously once wrote “soaring home prices are used to reward these risk-takers with an inflated net worth and a false sense of wealth; but having 0% equity in anything can hardly be classified as ownership.” Would you make this argument with a stock that rises? Or any other asset. This is the definition of equity. What you paid vs its value. I think we’ve been conditioned to fear the housing market, but in a lot of American markets, it is still once of the best savings vehicle.

The problem is, you can’t view “wealth buckets” in isolation. It would be relatively impossible for a 29 year old to save 182k as your chart suggests and put a 20-30% down payment on a home at the same time. I love seeing money in my accounts as much as the next guy, but sometimes to grow your money you have to spend some money, especially if you are secure in your career.

FYI, your financial blog is superior than most I have come across while surfing the interwebs. Always an entertaining and educational read.

jm

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…. live life!

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It’s fantastic to see everyone’s response. Crazy how well a huge % of your readers are doing. Although I’d say it’s not too fair for people who have entered the job market in the last 5 years.

That being said, my fiancee and I are at 110k at 27. So that would put us slightly below your chart but we also purchased an investment property during that time so that gives me a little hope that we’ll be able to retire some day.

Here’s to hoping for the 5% number vs. the flat number :)

A lot of people say they only invest up to the company match which is silly, especially if you live in a high tax state like CA or NY. Who’s to say you won’t move later to a lower tax state where any investment in your 401k will automagically earn you the difference in tax rates. And the bankruptcy protection mentioned earlier coupled with no taxes on earnings and it’s crazy not to max out.

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Financial Samurai Reply:
January 10th, 2012 at 6:56 pm

Hi Mate, thanks for sharing your perspective. 110K + an investment property sounds like a great track you are on as you build multiple wealth buckets.

Yes, I do think it’s kind of nonsensical to not max the 401K out if one has the capacity. I plan to move to one of the no state income tax states when I’m retired to save 10% per annum FOR SURE!

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I’m 28 and have about $100,000 in my 401K thanks to company match of 5% of salary, and maxing contributions. As Sam said, it’s not enough, but it feels good to slowly accumulate this over time.

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Financial Samurai Reply:
January 11th, 2012 at 7:43 pm

Sounds good to me Lindsey. Keep at it, and if the markets start cooperating, your nut will grow massive!

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401K’s have only been around since the 1980′s. Prior to that you could only save $2K per year pre-tax. The premise that you will be in a lower tax bracket after retirement is probably false – considering the state of the world economy.

I had been working 25 years when I retired at 61 so your chart doesn’t fit well with my experience (and probably with the experience of a lot of females) – at least from the number of years worked/age correlation. However I still fit within your ranges as far as amount saved goes.

Your main point is valid. You can’t just rely on tax deferred investments to fund your later years. Consider tax free investments made with after tax dollars – things such as muni bonds. We would have done better using these instead of IRAs!

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Financial Samurai Reply:
January 10th, 2012 at 6:58 pm

Hi Marie – Sounds good. Hopefully $2,000 back in the 80s felt like $17,000 now!

Guessing tax rates is a crap shoot. The one thing is that once we are addicted to lower rates/prices/fees, we REVOLT whenever they are attempted to be raised. Hence, I look forward to decades of current tax rates.

We have the power to just move to a no state income tax state like Washington, Nevada, Wyoming, Florida. That’s what I plan to do.

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Just wondering how you would save in our circumstance. Combined income $72k before taxes. We max out our IRAs ($10k) and have another annual savings vehicle ($7k). That leaves about $37k after taxes (assuming 25%). Divide by 12 minus rent ($1200) = $1883. Minus childcare for toddler ($1050) and that leaves $833 for all expenses/car/food/insurance. Maxing out my husband’s 401k (my company doesn’t have one) is $1416 per month. That would leave a negative amount for us to live on. What would be your advice?

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Financial Samurai Reply:
January 11th, 2012 at 12:18 am

$1,050 for child care seems like a lot…. as that’s over $15,000 in gross income you have to earn to pay for it (25% of your total income). The 10K IRA contribution is great. What is “7K annual savings vehicle”?

If 72K is your combined income, then I would match up to your employer match, and try and save the rest in a liquid account. Still try to shoot for saving as much as you can, but know that if you save too much, you can always use those savings.

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Kris Reply:
January 11th, 2012 at 1:12 pm

Unfortunately there is no employer match for 401K for my husband otherwise we’d totally be putting that money in. Who passes up free money? And yes, childcare is super pricey but that was all we could find for his age that wasn’t sketchy. He’s still in diapers, which ups the cost of preschool quite a bit. It goes down as they get older.
The 7K savings vehicle is (shameful) an adjustable life policy his parents told us to get when we got married. It took me a few years to realize what it actually was, and while it’s not specifically a horrid idea, it makes me grumpy to realize what we’ve gotten ourselves into. It’s still earning 4%, so I guess it’s better than nothing in this economy.
We have $55,800 in IRA’s (I’m 30 and my husband is 35), and $25K cash available in the life policy (death benefit is a half million). Compared to people we know and friends of ours who use their tax returns to buy trips to Mexico instead of funding their IRA’s, I thought we were doing good. But according to your chart and the other readers, we are WAAAAAYY behind. It’s kind of freaking me out now.

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Financial Samurai Reply:
January 11th, 2012 at 1:56 pm

Hi Kris,

Got it. Pretty kind of like my previous post on the “ideal weight”, this chart is my idea of a realistic ideal 401k chart which isn’t the end all, be all.

We have to do the math though. $55,800 after 7-12 years of work saved is not a lot of popcorn. Let’s say you both work 30 more years, 3x the amount of time. If after that, you only save $250,000, given this is your run rate, how many years do you think you can live off $250,000? Hopefully social security will be at least 70% there, but who knows. Don’t depend on it.

If you aren’t feeling any pain saving money, I don’t think you’re saving enough.

Obviously your chart is in California currency. Could you please convert it to Michigan currency so I can better see how I stack up?!

I am 35 and have only about $50k in retirement savings. I always use 10-12% though for my expected rate of return over a long period of time. I fully expect and plan to have over $2 million at age 65 at my current savings rate.

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Financial Samurai Reply:
January 10th, 2012 at 9:09 pm

Ha! Good one on California currency. Let’s do some simple math with some benefit of the doubt.

You started saving at 25 and after 10 years, saved $50,000. You plan to work for 30 more years. At your current rate, you will have $200,000. Let’s say you saved quadruple that amount, that’s $800,000. How do we get to $2 million? 10-12% annual rate of return is aggressive imo.

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Matt Reply:
January 11th, 2012 at 4:45 am

I get to $2 million by compounding interest over the entire time period and by assuming a slight yearly increase in salary. I know 10-12% is aggressive, but that is exactly how I have my funds invested, aggressively. To me, if I were only expecting an average return of 5%, it wouldn’t be worth putting money into mutual funds. Heck, it wasn’t that long ago that bank CD’s were paying that much! If expected returns were that dismal, I would rather invest my money elsewhere (like real estate). Let’s just hope, come 65, I wasn’t completely wrong!

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Financial Samurai Reply:
January 11th, 2012 at 7:19 am

Hey, Bernie Madoff did 10%, and grew his firm’s assets to $50 billion, so can you!

I wish you the best as that will be a good amount.

“Readers, care to share your thoughts on your age and how much you have in your 401K? If not, do you agree with the estimates above based on age or years of experience? What are some of the things you notice from the chart?”

Well, I’m currently 29 (going to hit the big 3-0 in October), and currently have $25,000 in my IRA accounts (No 401(k) as a grad student, alas), which puts me about five years behind schedule for the Low End, not exactly where I want to be. I would argue, as many others have, that it’s a bit much to expect AL of us right out of school (or again, still in school) to be able to max out a 401(k) plans with $17,000 each year, particularly if, like me, we’re only earning about $16,000 per year, which includes a healthy $4000 from blogging and related activities. This is not to say that it isn’t a goal for me (it is), nor that by the time we’re say, 30 or so, we should be trying to max out our 401(k) accounts (and our IRAs, and put some additional money aside in non-retirement accounts, to boot), just that, it does seem to be a high a bar to reach. (Just as an aside, I am currently putting 10% of my earnings aside in IRAs, so I am at least attempting to do what I can to build up the ol’ net worth.)

As for what I noticed from the chart, while it’s not technically from the chart, I couldn’t help but notice that you referred to amounts like $131,000 (aka, more than $25,000 higher than the maximum I can expect to earn as a biochemist if I stay in Pennsylvania) and $86,000 (aka, twice as much as the typical biochemist starting salary, even with a Masters’ degree) with the word ‘only’. While I can understand the desire to want the maximum possible income available to you during retirement, I can’t imagine not being able to live pretty darn well on such an amount, particularly since, again, I’m getting by on under $20,000 right now. (Admittedly, I’m ignoring the effects of inflation, and the fact that $86,000 when I turn 65 will probably only be able to purchase ~$21,000 worth of goods, but then I could argue that stocks historically return about 5% above the rate of inflation, and well, you get the picture.) Heck, even the $24,000-$36,000 amounts seem fairly reasonable (particularly since, again, I’m only expecting to earn ~$40,000 per year when I first graduate with my M.S.); if I’m saving anywhere near the 50% you’re suggesting, I’m going to living on less than that when I first start working, anyway.

“If you want to blast holes at the Ideal 401K Chart, ask yourself why you are blasting holes. Could it be that you are actually just making excuses for your own lack of saving discipline?”

Well, I wasn’t trying to blast holes, per se, just noting that most of us youngsters probably aren’t going to be get to the listed levels of savings quite as quick as this table suggests. By 40, 45, if not earlier, I fully expect to have saved as much as you have listed, if not more, although at the moment, yes, I’ll admit, my saving levels have fallen behind.

“How much of your after-tax, after 401K/IRA contribution are you saving?”

Currently, nothing; trying to provide myself (to say nothing of my fiancee) with food, a place to sleep, and utilities consumes all the money I take home (and frankly, I sometimes worry that even the 10% of my income I DO invest in my retirement accounts is too much, given everything else I need to do with my funds). My goal is to eventually reach the point where I am maxing out my 401(k), maxing out my IRA (and my (by then) wife’s IRA, as well), contribute to 529 plans for my (future) kid(s), and still put at least $500 per month into a non-retirement account; but that’s for when I’ve gotten my degree, a decent job (starting the hunt now, to get a jump on things) and have a more substantial source of income.

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Financial Samurai Reply:
January 10th, 2012 at 11:41 pm

Rog, thanks for sharing your thoughts. As a person who worked, and now is finishing up their Master’s degree, I wish you the best of luck in the field of your choice. I’d look more not at your age, but at your normalized years of work experience.

The point of the chart is to provide a gauge for people’s retirement’s based on age or based on work experience. And if one is behind, to perhaps create an “OH SHIT” moment to start cracking.

Math doesn’t lie. It just is what it is. If saving is not painful, I don’t think people are saving enough.

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Great post, I love the table. We have a different system here in Australia, but I’d love to be working with a similar age Vs savings guideline. Unfortunately I’m below the low end at the moment, better look at fixing that!

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Financial Samurai Reply:
January 11th, 2012 at 7:17 am

I live the Aussie superannuation program though. If you get a chance, please describe it and let us know if there are any tax benefits, withdraw age limits, etc.

Thx!

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It’s never too early to start planning for your retirement. In fact, compounding of earnings is so powerful that those who start saving for retirement in their 20s can amass large nest eggs with relatively little effort, as long as they invest regularly. For example, a 25 year old who invests $2,000 a year for eight years and never invests an additional dollar after the age of 33 , will earn more by the age of 65 than a 34 year old who invests $2000 a year for 32 years, even though the 35 year old invests four times as much.

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That chart is AWESOME. I am working on some videos (even though you said in your 2011 projection that most suck at videos). I may need to work in your chart in one of them and link to you if ok.

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Financial Samurai Reply:
January 11th, 2012 at 7:44 pm

Sure, highlight away and let me know when that video is out.

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So according to this, I am on the low end of the chart. Time to start making more money to put away. Its odd that I was preaching about RRSP (401k- Canada style) to my sister yesterday. Compound interest is a magical thing.

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Love the dialogue. I am amazed at how many of your readers are in range. Maybe you attract the above average savers here.

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Financial Samurai Reply:
January 12th, 2012 at 10:56 am

I expect more from my readers and am actually surprised any key would disagree with my charts! :)

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We are on the low end according to your chart Sam! And I thought we were doing pretty good. My wife and I both have pensions and combined with social security, I am counting on about 50% of what SSA is projecting, we should be able to maintain our current lifestyle. Having said that I am currently trying to build additional income streams with the goal of having enough to fund our dream retirement!

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The big problem is the one-size fits all assumptions. I’m 30 now, plan on working till at least 70, and only expect to live to 75 (no-one in my family has lived longer). At the rate we saved last year, without any capital gains, we would have about as much money per year as we do when I’m between jobs. So as long as my retirement account gains faster than inflation, I’m set.

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Financial Samurai Reply:
January 15th, 2012 at 10:33 pm

Edward, more power to you if you want to work until 70. What is it that you do that lets you want to work for 40 more years?

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Name withheld Reply:
January 16th, 2012 at 12:36 pm

It’s less what the job is than it is that I’m doing something. I can’t stand being idle. I had surgery 3 months ago and two days later, I was already disobeying doctor ordered rest and recovery to hang pictures on the wall.

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“you have to make less than $110,000 a year for the privilege of contributing after tax dollars in a a Roth IRA.”

There is is workaround for this as Congress repealed the income limit for Roth conversions in 2010 so high income earners can contribute indirectly to Roth IRAs. What I do is first make a contribution to a traditional IRA and then immediately convert it into a Roth IRA.

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Financial Samurai Reply:
January 16th, 2012 at 3:37 pm

How does one contribute to a traditional IRA if the income limit to this retirement vehicle is even lower at $65,000?

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I like the way you laid it out for us, it is a good guideline but as a lot of the commenters have said it is not going to be perfect for everyone, just something to help guide you.

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Financial Samurai,
Everything you document in this article is relative wise. “Save money, accept a 5% annual return. Hopefully beat inflation by a notch and have amply money upon retirement.” However, the reality is that the market, the S&P as a benchmark is still in negative territory since 2000. On top of that, most hedge funds last year lagged the performance of the S&P. That’s even before we dish out management fees for our respective funds that most of us don’t even realize.
So is 5% an acceptable return?? Not in my book. Looking at coarse Math. The market trades 5 out of 7 days. Probably 250 days a year(give or take). Assume a real conservative trading volatility of 1/2% a day. For a professional to average 5% return on such a scale is ludicrious.
The funny thing about 401K’s is a lot of people don’t consider it real money. You never had it!! It’s like a tax except it went into your 401K. I can’t touch it because of a 10% penalty. Craziness!!!
Happy to explain my situation but ultimately my key message is “manage your money like you own it. Be smart.”

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Financial Samurai Reply:
January 18th, 2012 at 9:38 pm

The 5% assumption is conservative enough in my book b/c I don’t include the company matches in my chart at all.

For example, my $17,000 annual contribution this year will get matched by about $23,000 due to a match and profit sharing for a total of $40,000. This $23,000 buffer is not included at all, and I know many people who have good matches as well.

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@Daniel
I agree that there is no “one size fits all”. My experience: I joined the military and spent 10 years working for Uncle Sam. At the time there was no TSP (gov’t equivalent to 401K). I got out after 10 years so I wasn’t eligible for a retirement check. I’m not complaining about that but the military folks don’t make a whole lot of money. So I was then 28 when I out of the military, got my first job and 401K wasn’t offered. Switched jobs at age 34 and now have a really good match on my 401K and am 100% vested from day one. I max out my pre-tax contribution and am quickly catching up to where I should be but I really started 12 years later than most people who start at 22 or 23 years of age (fresh out of college). I still have 30+ years of work ahead of me and if I keep maxing the 401K and putting other money into stocks I should be able to retire very comfortably. On the flip side is my military experience landed me a job making well over 6 figures so although I didn’t make much at first, it has really paid off in the long run. I hope others don’t get discouraged if they are “behind” according to the chart.

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Financial Samurai Reply:
January 26th, 2012 at 2:18 pm

This is why I have the Years of Work Experience column to help folks like you and others. How you doing from the charts? Do you think they are realistic?

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Wow…this chart was a real kick in the gut. I had thought I was doing pretty well, but for my age (almost 39) I’m at half of the low end, using the Age 40 line.

Even more embarassing, I have two business degrees (a BA and a Masters) and work in Finance and Investments. I have a diversified portfolio of mutual funds in both my rollover IRA and 401k, contribute 10% which exceeds my company match. I started investing at 22 with $1,000, and as of yesterday, the market value of my Roth IRA, Rollover IRA, and 401k is $124,000. Adding in my vested $18k pension balance brings my total portfolio to just over $140k.

My salary is $73k, I have virtually credit card debt, no car payment, $3,000 in savings, a fixed-rate mortgage on a townhome near Seattle that is underwater like everyone else’s, and a student loan payment for my Masters degree. I’d love to be able to max my 401k every year…I clearly understand the time value of money…but putting in $16,500 a year isn’t practical for me right now. I could probably increase my contribution to 15%, but I also want to build up my “emergency fund” as well. I realize overnight money market fund rates are near 0%, but I want to have enough in savings just in case.

Clearly, I’m not doing enough. I thought I was ahead of the curve when it comes to investing.

Depressed (maybe now sleepless?) in rainy Seattle,
Steven

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virtually NO credit card debt (less than $500) is what I meant. I forgot the “no” above

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I LOVE this chart! I’m two years out of college and have about $40,000 in retirement investments. I’m planning on adding about $25,000 this year, so I should have $65,000 by the time I’ve been out of college for three years, keeping nicely in line with that chart. I will probably end up adding some more and could end up past the $70,000 mark – we’ll see.

(I include taxable investment accounts as part of my “retirement investments” as well.)

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Financial Samurai Reply:
January 29th, 2012 at 8:34 pm

Great job saving so much after just two years! Hope you continue to save for the future and not let lifestyle inflation get to you! Good work

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Sorry, Samurai, but you are basing a chart without having any idea of what the person’s income needs are? Really?

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Financial Samurai Reply:
February 2nd, 2012 at 9:46 am

Really. How would you definie income needs?

Seems you are more upset with this chart and not being in the range from your past 3 comments. Instead of get upset, do something about it.

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Great Article. A bit scary as well. I am in my mid twenties and am at the low end of the spectrum. I have kept too much of my money in my regular savings, and need to start contributing more to my IRA’s. I finally am finishing school this year, so hopefully that can help increase the income and increase the savings!

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Great chart.

8+17*12 == 212 != 215

The other numbers are a bit off too

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The only issue I have with this is that when i was 24, I was only making 25,000 a year. (I live in a very low CoL location.) Living off of 8 grand a year, just doesn’t work, heck, I was paying 6 grand just in rent for the whole year!

Now that I’m older, in a much more lucrative position at work, and married, I’m much closer to maxing out my contributions and catching up to where we should be on the savings front.

I’ve always tried to look at things in percentages though. I have ALWAYS at least maxed to the employer contribution, and after the first raise or two, instead of getting that nicer car, put the difference into savings instead.

You gotta do the best you can with what you’ve got.

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