Explaining Why The Median 401(k) Retirement Balance By Age Is Dangerously Low
You likely won’t be able to live off your 401(k) alone in retirement, but you should be able to combine your 401(k) with alternative savings, investments, and Social Security to live a financially free life when the time comes to withdraw at the age of 59.5.
The below chart shows what a typical 22 year old college graduate should have accumulated in their 401(k) if they followed my advice and started maxing out their 401(k) after two years of working. The high end shows what happens if there is roughly a 5% constant rate of return from investing. I’m not even including contributions or company match to keep things conservative.
The reality is that the median account balance in the U.S. is only around $99,320 at the end of 2012 according to a study by the Transamerica Center for Retirement Studies. At least the median has risen by over 100% from around $47,000 during the depths of the bear market in 2009. Furthermore, the current median account balance is now higher than pre-crash 2007 levels of $74,781 thanks to contributions.
Given the median age of Americans is 35.3 according to the US Census Bureau, the median 401(k) balance per person should be closer to $215,000-$331,000 according to my 401(k) retirement savings guide instead of $99,320. So what happened to the missing $115,000 to $240,000?
FINANCIAL SAMURAI PRE-TAX SAVINGS GUIDELINE (401(k) + IRA)
| Age | Years Worked | Low End | High End |
| 22 | 0 | $0 | $0 |
| 23 | 1 | $8,000 | $17,000 |
| 24 | 2 | $25,000 | $37,000 |
| 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 |
HOW MUCH DO PEOPLE REALLY SAVE FOR RETIREMENT?
The base case assumption is the typical American after 13 years of working has roughly $100,000 in their 401(k) accounts at age 35. As a result, we can assume that the average person from ages 22-35 only saves around $5,800 a year. We can also assume incomes rise over time, and therefore absolute savings amounts also rise over time. Below is a reworked chart to better reflect what the average person has in their 401(k) + IRAs due to job changes. Unfortunately, something wrong happens between the ages of 35 to 65.
| Age | Years Worked | Low End | High End |
| 22 | 0 | $0 | $0 |
| 23 | 1 | $3,000 | $6,000 |
| 24 | 2 | $6,000 | $12,000 |
| 25 | 3 | $10,000 | $20,000 |
| 30 | 8 | $35,000 | $50,000 |
| 35 | 13 | All good until here. $75,000 | All good until here. $110,000 |
| 40 | 18 | $100,000 | $150,000 |
| 45 | 23 | $130,000 | $200,000 |
| 50 | 28 | $225,000 | $300,000 |
| 55 | 33 | $270,000 | $350,000 |
| 60 | 38 | $345,000 | $500,000 |
| 65 | 43 | What happened? $400,000 | What happened? $800,000 |
Everything looks much more reasonable right? We’re only talking about $6,000-$9,500 in savings a year until age 65 for the low end to reach $400,000 by the age of 65 after 43 years of work. But guess what, even the new realistic low end assumptions are too high based on the following facts of median 401(k) balances for those in retirement age.
Median 401(k) Balances For Retirees (65) At Different Income Brackets
• For people who earn between $20-$40,000 a year the median 401k account at retirement is ~$70,000 (83% short)
• For people who earn between $40-$60,000 a year the median 401k account at retirement is ~$105,000 (74% short)
• For people who earn between $60-$80,000 a year the median 401k account at retirement is ~$170,000 (58% short)
• For people who earn between $80-$100,000 a year the median 401k account at retirement is ~$255,000 (36% short)
• For people who earn over $100,000 a year the median 401k account at retirement is ~$370,000 (still 10% short)
As you can see, only folks who earn over $100,000 come close to my more realistic chart above at $345,000-$500,000 at age 60. The problem is, the median income in America is only around $50,000-$60,000 a year resulting in a median 401(k) account of only around $105,000 at retirement! With $105,000, you might be able to get three years living in San Francisco if you’re lucky!
Something happens between ages 35-60 where one accumulates only $30,000 more until retirement. Clearly statistics are playing tricks on us again because it’s hard to fathom someone would only saving $1,300 a year during their highest paying years.
EXAMPLE FROM THE AMERICAN ASSOCIATION OF RETIRED PERSONS USING AVERAGES INSTEAD OF MEDIAN
| Average 401(k) Balance By Age Group 2013 | |||
| Age | Real Average Balance | Financial Samurai Suggested Balance | Shortfall |
| 50-54 | $224,000 | $468,000 – $1,075,000 | 50-75% |
| 55-59 | $250,000 | $553,000 – $1,470,000 | 55-80% |
| 60-64 | $234,000 | $638,000 – $1,974,000 | 60-85% |
| 65-69 | $228,000 | $723,000 – $2,618,000 | 65-90% |
| 70+ | $230,000 | Enough To Live Until 110 | Bailout Alert |
| Source: AARP / FinancialSamurai.com 2013 | |||
If you retire at the age of 65 with only $228,000 with nothing else except for a $1,500/month Social Security check, how long do you think you can survive comfortably in retirement? Let’s also assume that your house is also fully paid off. In San Francisco, Honolulu, and New York City, I *might* be able to happily live for six ($35,000 a year gross) assuming I don’t have major medical expenses. Let’s double the time to twelve years if you live anywhere else in the world. We better die at 77 or else life is going to get even tougher!
Note: 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.
401K BY AGE DISCREPANCIES EXPLAINED
I’ve been consulting with more clients about their personal finances and what I’ve discovered is that something always seems to come up and knock someone off their retirement savings path. It’s all fine and dandy to assume everyone should logically max out their 401(k) or at least save 20% of their after tax income until retirement, but this is seldom the case. With consent from my clients, let me share three case studies to illustrate some points. I’ll also highlight one reader’s e-mail feedback about the topic as well as my own example. Names are changed for privacy reasons.
Case Study One – Family To Support
Joe is 42 years old and makes $120,000 a year as an engineer. He’s been working for 19 years and has $80,000 in his 401(k) (vs $300,000+ recommended). When I asked him to share his 401(k) situation he shrugged. He never considered maxing out his 401(k) because he always thought he wouldn’t have enough money left to take care for his wife and son. His wife worked for the first eight years and decided to stay at home after giving birth. Going from a two income family to a one income family is difficult if you’re not use to saving half.
Joe has about $12,000 in after-tax savings which will cover about four months of living expenses just in case something bad happens. Given the thin buffer, we talked about the importance of getting long term disability. When I dug deeper, I realized Joe has a penchant for fixing up old cars. All told, he’s spent over $60,000 after taxes to beautify his two 1959 Mustangs.
Case Study Two – Expensive Living
Sally is 32 years old, and makes $75,000 + bonus as a medical equipment sales rep. Sally got her Master’s degree in healthcare, and graduated with $27,000 in debt at the age of 24. She pays about $500 a month in student loans which she plans to pay off in 10 years tops.
After seven and a half years of working at a reputable firm, Sally has $70,000 in her 401(k) compared to a recommended $127,000 after eight years of work experience according to my guide. Sally only contributed 10% of her annual gross salary into her 401(k) because of her school debt, car payments, credit card payments, and $2,600 a month rent here in San Francisco. Sally’s case shows that education is expensive and good paying jobs come with higher cost of living. Sally has about $5,000 in savings in the bank.
Case Study Three – High Income Burnout
Susie is 34 years old, single and makes $150,000 + bonus as a VP at an investment bank based in San Francisco. She’s been working for 12 consecutive years out of college. In between years 10 and 12, Susie took a 1.5 year hiatus to become a baker during the financial crisis. She was burned out and wanted to try something new. But, after spending $25,000 for tuition, missing out on 1.5 years worth of income, and getting screamed at while making only $10 an hour, she realized being a baker at a restaurant was not for her. “If I’m going to get yelled at making $10 an hour, I might as well make a lot of money!” Susie joked.
Susie has about $150,000 in her 401(k), 50% higher than the current median according to Transamerica. However, given she didn’t earn any money for 1.5 years and payed a lot for tuition, Susie is also about $50,000 light based on my guide. Susie was only contributing about 10% of her pre-tax income to her 401(k) for her entire career because she didn’t want to tie her money up beyond the company match.
Case Study Four – Highly Educated Couple
An e-mai from a reader responding to the Average Net Worth For The Above Average Person article:
“I noticed that most of your posts are geared towards people who start working at age 22 with minimal debt – as just one example, your “above average” people projections.
But many “above average” people do not start working at age 22 and incur substantial debt before they start working. For example, I am a lawyer that obtained a master’s degree and then a law degree before starting my career at age 28. My wife is a doctor, who completed her residency and started practicing at age 28 as well. Both of us started our careers with substantial student loan burdens – over $325,000 between the both of us.
Our late start means we lose a lot of the magic of compounding interest. And our debt burden takes a big chunk of our monthly income. These are significant challenges.”
Case Study Five – Early Retiree
My 401(k) has grown to roughly $415,000 as of today at the age of 35. Although $415,000 is roughly $80,000 above the high end of the range for someone who has contributed for 13 years, my 401(k) is at serious risk of falling behind given I no longer contribute or have a company match. My last year of work saw over $25,000 in company 401(k) match that I’m starting to miss. Cherish your 401(k) match and profit sharing while you still got it!
Based on a conservative portfolio analysis (4% per annum growth, no contributions or match), my 401K will grow from $400,000 to roughly $1,100,000 by the age of 65, the low end of my guide. Although I think 4% per annum growth is feasible, I still fear horrendous bear markets in the future. A company match and profit sharing buffered my portfolio extremely well during the downturns of 2001-2003 and 2008-2010. I now feel my portfolio is swimming naked, which is why I need to be extra disciplined in my rebalancing.
Feedback
We’ve read four examples of people who do not meet the range in my 401(k) Retirement Savings Guideline chart despite earning healthy salaries. I also do not feel confident I’ll reach the high end of $2.6 million by the time I turn 65. You might therefore come to the conclusion that my 401(k) Retirement Savings Guideline is off and you would be correct given the average 401(k) balance for a 35 year old is roughly $100,000 and not $215,000 as I would like.
But, you would be incorrect to assume my guide is off based on what you really need when you no longer have a job. You just have to do the math yourself to see if you can live off even $250,000 as the AARP picture highlights for the next 20-30 years in retirement.
DO YOU WANT TO BE JUST AVERAGE?
Life gets in the way of our retirement savings plans all the time. We have tuition to pay, expensive cars to fix, vacations to take, concerts to attend, shoes to buy, Range Rover Superchargers to drive, alimony to pay, sickness to deal with and economic dislocations to experience. Some of us just like to honestly blow lots of money and not give a damn! There’s always an excuse for not saving. However, if you don’t want to become one of those tragedy stories or a burden to your fellow citizens, then I suggest increasing your 401(k) contributions and after tax savings percentages.
If the amount you are savings doesn’t hurt, then you are not saving enough. At the end of our careers, we only have ourselves to blame if we come up short. Unless you have developed alternative income streams, paid off your house, and have other after tax savings, living off $350,000-$500,000 for the next 20-30 years is just $12,000 – $25,000. Pay yourself first before anything else and max out your 401K. After you’ve maxed out your 401(k), figure out where you can save some more.
Even if you do reach my retirement savings guide of $638,00 – $2,000,000 by the age of 60, you aren’t going to be living it up for the next 20-30 years if that’s all you got. You’ve seen the various 401k portfolio scenarios I’ve run based off just a $400,000 portfolio and you know inflation is a killer. Life happens. Just make sure you keep life happy.
Readers, are you worried about having enough in your 401(k) or retirement savings in general for those outside of the US? What are some of the reasons inhibiting you from contributing more to your retirement savings accounts? Do you think our/your country is going to have a retirement crisis in 30 years time given Gen Y and Gen X do not save and don’t have a bull market in stocks and real estate to carry us over yet?
About the Author: Sam began investing his own money ever since he first opened a Charles Schwab brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college on Wall Street. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 35 largely due to his investments that now generate over six figures a year in passive income. He now spends his time playing tennis, spending time with family, and writing online to help others achieve financial freedom.
Photo: Kayaking on beautiful Lake Tahoe.
Check out Personal Capital’s “401K Fee Analyzer” which shows how much money you are wasting. I was paying $1,000+ in excess portfolio fees I had no idea I was paying. As a result, I’ve rebalanced into a similar fund that has 80% lower fees. Go to the Investing tab on the top right and then click 401K Fee Analyzer to see how you can optimize.
HI Sam,
I’m happy to say I’ve opened up a 401k with my company and am at the moment contributing 17% to see how much that affects my take home pay and will increase if it does’nt “hurt” enough. Unfortunately my company does not match :\ At the moment I’m using a “moderate” plan of 40% bonds 60% stocks in my 401k. After further research I plan to open an IRA an start with atleast $1k a year till I can eventually max out both 401k/IRA (I’m 24 and hope to meet the max by 28).
I have an accountant of mine that has recommended I open a traditional IRA and after 8 months or so convert it into a Roth IRA. Apparently by doing this I keep the higher interest gained from a traditional IRA while having a Roth. (at least i think this is what i was being told, I’m still figuring this all out)
Is this accurate? What would you recommend?
Great article btw!
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David M Reply:
February 5th, 2013 at 9:59 am
Not exactly sure what your accountant was trying to do regarding opening up a traditional IRA and then converting to a Roth later on. What it will do is give you taxable income. However, income earned inside a Roth – is tax free, if taken at 59 1/2 or later. I think you should go back to your accountant for a clarification.
At your age – I would recommend you being more agressive with your split – I think you should be 100% in stocks – certainly more than 60%.
Putting in 17% of your income – That is GREAT! Keep up the good work!!!!!!!
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Newbie Reply:
February 5th, 2013 at 10:23 am
Thanks I’ll get some clarification on that!
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Financial Samurai Reply:
February 5th, 2013 at 10:13 am
Here are a couple articles to read:
Disadvantages Of A Roth IRA: Not All Is What It Seems
The Proper Asset Allocation For Stocks And Bonds By Age
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Newbie Reply:
February 5th, 2013 at 10:23 am
Great I’ll give those a read,
Thanks!
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Newbie Reply:
February 5th, 2013 at 1:09 pm
After going over both articles I’ve changed my contributions to 5% bonds and 95% stocks and will only look into traditional IRA’s!
Thanks for all the amazing info. On that note I’m also trying to get my parents to max out their 401k’s as they are only putting in 5% (company’s max match)
In my mothers 401k she has about $300k with a conservative investment plan and my step dad has about $150k with a conservative investment plan as well. They both started saving a bit late and both plan to retire in only 6 years.
After reading several of your articles it Does not look like they will have much to retire on.
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Financial Samurai Reply:
February 5th, 2013 at 1:49 pm
No problemo. I’m sure your parents can save much more than 5% too.
It’s a great way to help them help you, for guess who will be helping your parents if they get into a financial bind?
Best of luck and remember, nobody knows the future. You can’t really control your investing returns. What you can control is how much you save and where you asset allocate based on your risk tolerance.
Retirement crisis in 30 years – don’t we have one now – some people are retiring now with very little savings and carrying a mortgage and credit card debt!
I’m not worried about having enough $ in retirement – I have funded my 401K to the max for over 20 years and will continue to do this. I also have been funding a Roth IRA to the max for the last 10 years or so. I also have other savings and investments outside of my retirement accounts. Additionally, I have a home that will be paid off – well before retirement – that if necessary – I would sell.
I think the readers of this blog are going to be in MUCH better shape than the average American. Those with little to no savings – are much less likely to read a blog like this.
They could learn a lot from this blog BUT they do not know that!
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I am below your suggested target for my age but I’m not giving up or complaining. I agree that saving has to be somewhat painful to really test yourself and minimize unnecessary spending. I keep increasing my 401k contributions and also put aside all my extra after tax income into savings or investments every month. We have to really want to be better than average to break out and keep momentum going to be financially independent and to keep building wealth.
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Strangely, I’m not worried at all. I rolled over my 401k to an IRA and I found out that I’m an investing genius! My IRA increased 8% over just 2 months. At this rate, I’ll be a billionaire soon. Well, I guess it’s easy when the market is blowing up like a balloon.
In all seriousness, I’m not too worried. I’ll stop contributing to the 401k(IRA) in 2013 since I retired from my job last year, but I’m sure I’ll be able to pick it up again at some point.
Mrs. RB40 is still maxing out her 401k contribution. She is below the low end of your guide. She went to Peace Corps for 2 years and it took a while for her to find a good job when she got back. She also went back to get her MBA. Hopefully she’ll get in line with your guide soon.
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I’m behind your recommended guide for a number of reasons. I’m not worried too much about my retirement prospects because I still have the majority of my career ahead of me & have made it a focus to save more in order to make up for time I lost at the start.
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What I’ve never liked about that statistic is that it only looks at 401k accounts. The average worker changes jobs 10 times in their career, so 9 out of 10 of those 401k accounts are now IRA accounts.
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I recently started a new job but I can’t contribute to a 401k till after one year here because a majority of the company are hourly workers and therefore, not likely to invest in a 401k long term. Major blow to my savings. In addition, at my previous job, high income earners (>100k) were capped to contributing only 5-6% in the company 401k annually due to tax rules since the hourly workers did not contribute at all. I don’t think I have been able to max my 401k contributions since I started working at companies that have a very heavy manufacturing /blue collar base that do not enroll in 401k’s. They didn’t mention this in grad school or at any of my personal finance classes and it’s worth considering when deciding on a job offer in case one company has less restrictions on 401k’s.
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Financial Samurai Reply:
February 6th, 2013 at 7:30 am
Becky, thanks for the insights. I’ve never heard of a company limiting the amount one can contribute to their 401k. A match yes, contribution of your own money no. Do you kind double checking with HR to ask for specifics? I find it very hard to believe a company can prevent an employee from saving their own money in a federally mandated retirement vehicle.
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Matt Reply:
February 6th, 2013 at 11:05 am
Sam,
It sounds like they had rules in place to make sure they passed non-discrimination tests. There is more about it on Wikipedia:
en.wikipedia.org/wiki/401(k)#Highly_compensated_employees_.28HCE.29
My company makes a 4% flat distribution to everyone, which allows it to be exempt from Average Deferral Percentage (ADP) testing. So, it is avoidable, at a cost.
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Kyle Reply:
March 18th, 2013 at 12:14 am
I have run into the same problem with contributing to a 401k. I have always contributed 17% since I started working, which is about 12 years. About 2 years ago, I switched to a different company in the same profession and discovered last month that the company dropped my 17% to 7% and will drop again in July to 0%. From what I understand, if you are considered a highly compensated employee, which makes more than 110K, you are limited to the amount you can contribute so as there are not more highly compensated employees contributing than lower compensated. This is supposed to be a law set up for lower paid employees to be offered the same benefit as higher wage earners. However, it seems in my case, the high school worker not currently worried about a retirement is affecting mine. Seems unfair.
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Financial Samurai Reply:
March 18th, 2013 at 6:35 am
I read another commenter have a similar issue. I’m wondering if you guys or I am confusing a company match vs. how much you can contribute? I can’t imagine an employer not allowing everybody to max out their 401k if they want, unless the employee has such low income that it would be hazardous to do so.
Kevin Reply:
May 7th, 2013 at 10:58 am
Hi Sam,
I am in the 401(k) industry. Technically, every employee can put the maximum employee deferrals into their 401(k) account each year. However, the plan cannot discriminate in favor of highly compensated employees, who are better able to max out while the non-highly compensated employees can’t (or won’t). If the plan fails ADP testing (as referenced above), highly compensated individuals may be required to take a refund in the amount needed in order to get the deferral levels for highly comps more in line with non-highly comps.
In some instances, plan sponsors (employers) will place a limit on the deferral percent a highly compensated individual can put into the plan to avoid the refund process entirely.
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Financial Samurai Reply:
May 7th, 2013 at 11:15 am
Thanks for the insight Kevin! Are you saying that it is possible to have a situation where a “high compensated employee” is not allowed to max out at $17,500 in 2013 if there are too many non-highly compensated employees who cannot due to a ADP test?
Out of curiosity, do your guideline charts include 401ks and IRAs? Whenever I switch jobs I always roll my 401k into my IRA for lower fees and more investment options. so my actual 401k balance is quite behind by these metrics (though its’ plenty healthy, given that I’ve only been in my job for 3 years) but my overall balance is only barely short. I’ve also saved tons in taxable accounts which may make up for the variance.
Also, like many readers here, I wasn’t able to start saving aggressively until later. I realize you got into the financial services industry — where salaries are great — early, but many of us who live in expensive cities had to fumble about in sub-optimal jobs for 2-3 years, THEN find our entry-level footing, and then work our way up to the point where we started to see the payoff of a six-figure salary. I didn’t crack 30k in income until I was 25 and I didn’t crack 50k until I was 28… just simple cost of living meant that I couldn’t max out my 401k until a ways later, even though I always, always contributed enough to get the match. I don’t see how you can realistically max out your 401k contributions on a $25k a year salary without moving to a much less expensive region (and I don’t mean less expensive apartment/neighborhood, because I did that) where you might not be open to the opportunities of the upside down the road.
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Financial Samurai Reply:
February 5th, 2013 at 11:02 am
Jason, good question. My 401(k) charts include ALL pre-tax retirement savings amounts (including IRA). I’d like the charts to also be a reflection of RRSP’s in Canada and any other country where the cost of living is similar to the US.
I wouldn’t be able to max out my 401K with a $25K salary either. The beginning amounts are also a little tougher as many commenters have voiced. However, many more readers have commented the after 35 amounts are very inline. Because I was able to contribute more than $10,000 in my 401K my first year out of college making $40,000 in New York City, I strongly feel that contributing more to a 401(k) is a choice.
This article tries to address what is going on in American and how come the trend towards the median 401(k) of $100,000 at 35 doesn’t continue until one is 60.
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Enough is an interesting word! If you want a luxurious lifestyle, you may never havve enough. Although I never feel deprived, I have a reasonable lifestyle and I expect to support reasonably in retirement. I will use my fixed portion (Social Security & pensio) to take care of my basics and let my other investments support the wants such as travel and such. One of the advantages of of a pension and Social Security is the cola increases and lifetime medical. A little planning does work!
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Right now I am 22 and I work in a multinational company. And from now on I am working 401k and besides this I am saving to open new business for myself. Moreover, I have to maintain my small family with my mom. So, that is why I think everyone should or must think about their after retirement
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Umm. Didnt 401ks not exist until around 1980? So saving in one for 40 years means you’d have had to gotten started in 1980 and not retire until 2020 if my math is right. Might be why the accounts of those who are 65 are not what you would expect.
Also you mix and match the words median and average a lot. Too much for me to be entirely sure this is a clear picture.
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Financial Samurai Reply:
February 5th, 2013 at 12:19 pm
I highlight median balances because that is what’s available datawise. I then highlight the AARP picture that shows the average to provide more perspective. Hopefully you and other readers are able to use the different perspectives to come up with some logical thinking. Hopefully you and other readers understand the difference between median and average as well. I think providing both is helpful.
The 401K retirement savings chart can be used for retirement savings in general.
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shaun Reply:
February 5th, 2013 at 1:25 pm
Haha sorry I have a thing with numbers getting thrown around. Things like median age of American vs median age of American who has a 401k drives me nuts. I need to relax a bit.
With people 50+ years old I have to believe the drop-off in growth has to be mostly because the ability to fund a 401 has only existed 33 years at most. I wasn’t even born yet in 1980 so this is an assumption but it probably took most companies a while to adopt it and for employees to be aware of it like they are now. Say most people of age started their accounts around 1983 it wouldn’t really matter if you’re 65 and started your account when you were 35 vs if you’re 55 and started your account at 25 you’d have roughly the same amount in it. Move the first year of heavy adoption to the late 80′s meaning people over 50 have only been saving 25-30 years instead of 40+ and the average balances in the graphic line up with your second chart.
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Yes, so worried. I don’t have a single 401K so I’m just maxing out the IRA — and that’s it. Here’s to hoping I can sit at a desk until I’m 92!
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Financial Samurai Reply:
February 6th, 2013 at 7:31 am
Or build that X Factor and save lots in after tax income!
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I would have to have a direct conversation on personal investing. You’re my role model :-)
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I am below your recommendations and I am a little worried. I got behind due to me getting out of debt and now I want to get back on track. Great information.
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“My last year of work saw over $25,000 in company 401(k) match that I’m starting to miss.”
?? Since the 401K employee contributions were capped at 17K in 2012 (with lower limits on some of the previous years), does this mean that your employer was giving you a > 100% match on all of your 401K deposits? Really? Is that actually true? I’ve never heard of a 401K match being that generous.
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Financial Samurai Reply:
February 5th, 2013 at 5:44 pm
To specify, the 401k match was around $5,000 and the rest was from profit sharing. What are your thoughts on the article?
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I’m not particularly worried about myself. I don’t care much about my 401K, I invest enough to get the full match. That comes to 12% of my salary. Outside of retirement savings I save 50% of my net income, up from around 25% last year. Better job, bigger savings.
I do worry about those life milestones, like home buying, getting married, having children and what those will do to my savings. But I’m pretty certain that I should be able to easily keep my savings at 20% or more of my gross.
Otherwise, I’m actively growing my income by working hard at my job and investing in dividend paying stocks. I’ve even started a blog, which if the stars align properly, may provide me with a couple of extra bucks some day.
I am very worried about most of America. I think in general, people will have enough to live on in retirement. But most people aren’t going to be able to live it up. They had better make peace with endless amounts of daytime TV and walks around the block, because that’s the extent of what they’re going to be able to afford if they don’t make savings a priority.
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Financial Samurai Reply:
February 6th, 2013 at 7:33 am
I wonder if everybody is worries about everybody else, but never themselves?
In which case, America is in actually much better shape because everybody is fine. We just like to worry about others when there really is no need.
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Great points! I think family expenses definitely play a big role…starting with daycare and continuing with clothing, activities and college tuition. I also think that people grow accustom to their standard of living, and as time goes on (and they earn modest raises at work), they feel like they deserve to buy that nicer car, go on that luxurious vacation and upgrade from their “starter home” to their “forever home”. All of those extra expenses add up!
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Financial Samurai Reply:
February 20th, 2013 at 9:00 am
It’s scary how expenses add up. On the flipside, it’s scary awesome how compound growth and consistent savings adds up too!
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We have saved the best we can and don’t come close to this chart. We are saving the max in my husbands 401k and I work a part time job with a pension, and most of my pay goes into
the pension plan. There is just something comforting about the small print on the pension that says..”money for life”. When I have a yucky day at work I come home and look at that
statement for the 403b and boy do I feel better! Yeah, we are on a limited budget, and can’t always go out on a friday night, but we are saving for retirement.
I think there will be a crisis in my generation (the 40 somethings). Almost no one in our peer group saves the way they should be for retirement. If they save at all. My brother for instance, has nothing saved at 41. I ask him what he thinks he will do, and his answer is,”I don’t know”. It will be a rude awakening for some.
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Financial Samurai Reply:
February 6th, 2013 at 7:35 am
Don’t worry, the 30-somethings and under will help you guys out. We’ve come to expect it.
That is interesting about your brother. Maybe it’s because he loves to work and has other secret financial means he’s not telling you?
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Yes, I’m worried about not having enough in my 401k/retirement savings. Very worried. Esp since my boyfriend / future husband to be has saved $0 and he is 31.
I just highlighted my investment account savings in a post tonight: http://hereverycentcounts.com/2013/02/investing-on-the-right-track-or-getting-out-of-control.html
If you include my traditional and Roth IRAs in addition to my 401k(s), I have $88.9k put away at 29. I also have $97.8k in taxable stock/etf accounts and $20k in my company stock options that is already exercised (so I’m not sure how that should count, but nonetheless is in my portfolio.) I’m not sure where I fit on your chart – ahead, behind or otherwise.
I’ve maxed out my 401k every year I had access to a 401k. Most of my jobs did not offer a 401k. (I’ve only had access to one for two full years thus far, going on my third year now.) Since my first year of work out of college I maxed out my Roth IRA. I’m trying to catch up now. I’ll max out both my 401k and Roth IRA again this year, knock on food. I put $6k into my 401k in January and am trying to get that out of the way with as fast as possible to clear up cash for later in the year.
One important piece here is that many people do not have access to a 401k, and the limit for Roth IRA investment is $5k per year. That’s not much. I’ve saved in my taxable stock accounts, but most people wouldn’t necessarily think to do that (if a Roth IRA has a max of $5k per year, then isn’t that “enough” for retirement?) Of course not, but shouldn’t the government encourage the right amount of savings – esp since so few people have access to a 401k these days?
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Financial Samurai Reply:
February 5th, 2013 at 11:49 pm
Looks like you are about $20,000 ahead at least to me. Well done! My charts are really a reflection of all money earmarked towards retirement savings/investments, not just 401k.
Folk should look to your example given you’re doing well and started with random low income jobs for the first several years. There is so much pushback for why folks can’t save the amounts recommended in their 20s.
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Her Every Cent Counts Reply:
February 6th, 2013 at 9:06 am
Thanks. This money may currently be in the retirement bucket, but it’s also my savings for a home purchase, a car purchase, and my emergency account. So I’m not sure I would agree that I’m ahead, but I do like to think of my savings as a lesson that people can do this on a lower income earlier on, like you said. My only caveat to that is I was very, very fortunate to have my parents pay for my undergraduate education, so I did not have student debt when I started. To be completely transparent, I also had $15k which I received in a lawsuit at a young age — this helped me get on my feet after college, buy my first ($8k) car that I’m still driving, and pay my super-cheap rent (with a lot of roommates) so I could get an unpaid internship, work a PT job, and get on my feet. The first 6 months after college before I landed my first FT editorial job were rough, to say the least. I imagine it’s harder for anyone who has debt. That said, many people who have debt choose to move back with their families, yet still don’t pay down the debt as fast as they could or start investing in an IRA. I really appreciated – in hindsight – how moving out and having rent to pay forced me to push myself along in my career, even if it was painful at times. It really felt for a while like I’d never save more than a couple thousand dollars, but as my income grew so did my ability to put more away. I also decided to reduce my living expenses again, moving from a studio apt and reducing rent costs 50% by adding back two roommates. If I had student debt, however, I wouldn’t be “ahead” in this picture, but I’d likely have saved even more to make up for it.
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Financial Samurai Reply:
February 6th, 2013 at 10:27 am
Sounds good. Good points about earmarking the funds for a house, etc.
Perhaps you want to write a detailed guest post about how even after you started off in a low paying job that had nothing to do with your major, you’ve still managed to build up $200,000+ by the age of 29 and tie this post into it?
The goal is to share real stories to help break down the self-defeating mentality that one can’t save because of whatever reason.
Her Every Cent Counts Reply:
February 6th, 2013 at 2:45 pm
Yes, I’d like to do that. I’ll work on one and share with you soon for your thoughts.
(and food=wood. sorry for continually posting typos. i should not comment late at night.)
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One other thing – of the 3 years I’ve had access to a 401k I never had an employee match program.
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Financial Samurai Reply:
February 20th, 2013 at 9:01 am
This is a good point… access to a 401k skewing the averages/medians lower. The other is folks rolling over to an IRA, hence I’ve assumed my 401k charts can be used as a barometer for all savings.
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Add me to your case studies… 39 years old and only $165K in my 401k. Of course, I have been in Asia the last 7 years so have stopped contributions to my 401k and Social Security… definitely a big hole that is being filled with high after tax savings…!
The upside is I am not sitting on a big pile of assets with unrealized taxes!
-Mike
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Financial Samurai Reply:
February 6th, 2013 at 7:36 am
Mike, can you share with us your after tax savings?
Thai taxes are rougher than the US it seems. But everything is so cheap there. You plan on retiring there?
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Mike Hunt Reply:
February 6th, 2013 at 7:42 pm
After tax savings are about 60% of gross salary or a savings of 80% of after tax income…
I plan to come back to the USA… although it may be tough to buy that house in CA!
-Mike
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Financial Samurai Reply:
February 20th, 2013 at 9:02 am
Buy on the big island of Hawaii. I just saw a show, Hawaii Life, where my friend and their two kids bought a 3/2, 1,900 square foot house for only $699,000 on a Resort! 65% cheaper than SF!
You have to also be able to take into mind that you have to earn more than a minimum wage job or find a way to reduce costs to be able to take advantage of these options. But I do agree with the process of investing and how that can be a major benefit for individuals seeking to having that compounded effect on the earnings when it comes down to retirement.
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Two years ago my husband’s company was bought by another company and they suspended the 401(K) match. We stopped contributing (we fully max two Roth IRAs and contributed 6.45% into my employer’s plan). However, we just learned last week that they are reinstituting a matching contribution of 3%! Hurrah! I can’t wait to get us signed back up to reap the benefit.
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Financial Samurai Reply:
February 20th, 2013 at 9:02 am
Glad that 401k match is back! Now that you are self-employed, it’s more important than ever to build that nut!
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I didn’t start working until 24, but I have maxed out my 401k and Roth IRA every year that I have worked (6 years now). Combined they are a little over $150k, and they make up ~60% of my net worth. The remainder is a combination of cash on-hand and taxable investments. At this point I’ll probably still max them out for another year or two, but I’m going to start tapering down my retirement savings and ramping up my taxable savings. For those of us that plan to leave the workforce a few decades before the withdrawl period, taxable investements will need to be a sizeable portion of the total portfolio.
If you have some recommendations on a good taxable / retirement account ratio for early retirees (let’s say at 40), I’d love to see how they fit in with my plans.
For the record, I’m a 30 year old engineer making $110k per year who rents an apartment in Chicago with total yearly expenses (including rent) coming in at ~$30k. The remainder goes to Uncle Sam and investments.
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Financial Samurai Reply:
February 7th, 2013 at 7:52 am
Sure, I’ll think about a recommend net worth mix in a future post. When I was 30, my 401K made up less than 1/5th of my net worth, but that’s because I was aggressively investing in other assets b/c I mentally wrote off my 401K even though I was maxing it out.
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I’m definitely behind in my 401k retirement balance based on your standard. I’m 29 years old and having 110k in my 401k, still 17k under your low end expectation.
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Financial Samurai Reply:
February 6th, 2013 at 3:28 pm
Don’t beat yourself up. The first 10 years have higher variance. If by 40 there is a big deviation then Id start to worry.
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Points well taken. Most of us in the US need to be saving more for retirement. Your posts have influenced our decision to increase our retirement savings over the last year.
Since you like numbers, consider this. Current retirees withdrawing 4% of 228,000 each year get $9000 plus $36000/year in social security checks for a married couple. This gives a total income of $45000/year in retirement. It’s not travel the world income, but it is a livable income for most of the country especially in a fully paid for home.
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Financial Samurai Reply:
February 7th, 2013 at 7:51 am
Glad I’ve motivated you to save more.
$45,000 a year in retirement might be OK for one person, but for two people it’s tight if you want to live a comfortable life. Hopefully this couple has a paid off mortgage and their health care expenses under control. Goodness forbid the person is single and has to live off $20,000-$25,000 a year.
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I could make a case for your #4 couple, but I suspect they bought a nice house and some other things, while still paying off debt, but not contributing the full amount to retirement. I have not maxed out my IRA every year, but did buy into a business and commercial and residential real estate that will hopefully get me to where I want to be withing the next 10-12 years. I also spent way too much on other things instead of saving, but that’s hindsight at this point and I am trying to make up for past mistakes.
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Financial Samurai Reply:
February 20th, 2013 at 9:03 am
Well, hopefully those things you spent money on brought you pleasure, memories, and some are still around. Furthermore, you have your business which you are selling that will free up equity so that’s exciting!
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Hi Sam,
Always enjoy reading your posts. I am 24 and am sitting right at your high end range, but I started work a year early. For the past couple years I have been back and forth between 0% contributions and my current 12%. I’ve always struggled to increase my % because I feel like I can make a better return through real estate. I have saved aggressively and put a lot of my money into 5 rental properties.
I always see you recommending maxing out 401k so I’m curious to get your thoughts on this. 401k is nice because it saves me 23-26% in effective tax and will have compounding effects. However, there’s still taxes on withdrawal with no certainty on future tax rates while real estate cash flow is essentially tax free due to depreciation. Of course I’d like to max my 401k AND do real estate, but my goal is to reach 3000-3500/mo in after tax passive income as quickly as possible rather than maximize my net worth.
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Financial Samurai Reply:
February 7th, 2013 at 7:48 am
Jonathan, I’m impressed you have amassed 5 rental properties by the age of 24! Can you share how you came up with the downpayment to do so? Indeed I recommend maxing out the 401k and investing in real estate, which is why I scratch my head when I see folks no max out their 401k or IRA and aren’t willing to save to invest in real estate. Real estate really is my favorite investment class.
401k tax can be managed by moving to a lower tax state and through smaller distributions. The point is to not give up now and pay taxes up front like with the ROTH.
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Jonathan Reply:
February 7th, 2013 at 9:43 am
Sam, thanks for the reply!
I got lucky in that I happened to graduate with a petroleum engineering degree while the oil and gas industry was hot (still is). Starting starting salaries are about 90k with 10-20% annual bonuses. After 2.5 yrs, salary is about 105k. I was also very lucky to start reading about personal finance and blogs such as yours almost as soon as I began working, so much credit to the PF blog community.
I followed after you to keep expenses low and saved about 60-65% of after tax income. The rental homes were acquired using hard money loans (12% interest) to buy the houses in cash and renovate to create equity. With the equity, I could then take the newly appraised home and get conventional financing (4-5%) to pay off the hard money loan. Property is cheap in Texas and avg price of these homes after renovation is 100 – 130k with good cash flow. The actual out of pocket cost for each home averages around 15k. Appraisals I’ve found are a crapshoot and some were very good (only 10k out of pocket) while some were not so good (25k out of pocket).
I purchased 4 investment homes while I was in a small apartment and the 5th “rental” is actually a primary residence. The reason for this is that lending requirements get much stricter after your 4th mortgage unless it is a primary residence. Since I was capital constrained (low reserves), I decided to buy a primary residence to more easily obtain a loan, put less money down, and also get a lower interest rate. Plan is to live here for at least a year and build capital again and then rent it out while I find another apartment or another primary residence!
I remember you mentioning getting some backlash for your recommendations on how much wealth younger people should be able to obtain. I don’t really have any inclination towards blogging (I just like reading) but if you have any interest, I would love to help share my story via guest post or something like that to help convey that it is possible!
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Financial Samurai Reply:
February 7th, 2013 at 10:02 am
Sure Jonathan. I welcome a guest post from you sharing your story on how you landed your gig, how you saved and bought your property, and your views on your generation of why so many still live at home and complain why they can’t get ahead.
I’m fascinated by the mindset of different generations and people’s beliefs about money. Feel free to shoot me an email with your post.
So I’m sort of skewed towards the lower end for my age…a little above but not much (I’m 42), is that just an anomaly of the five year stretch it took the market to get back to 2008 levels, or am I just a slight under achiever in the 401k dept.? I’ve always maxed out to the best of my memory. On the bright side, I’m significantly ahead of schedule on the savings/net worth similar charts you’ve discussed in previous posts.
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Financial Samurai Reply:
February 20th, 2013 at 9:04 am
Not sure without knowing more about your other assets. Do you have other after tax savings? I’m using my charts as a catch-all for retirement savings to make it more relatable.
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nbsdmp Reply:
February 20th, 2013 at 9:34 am
My 401K respresents about 3% of my net worth so yes I have other retirement savings. I was just curious as it seems like the expect rate of return might be a little high for your chart…but I understand its just a guideline and the anomalies of down markets like in ’08 smooth out over extended periods of time. So are you assuming 10 or 11% historical returns?
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What is the median 401(k) balance for a retiree (65) who earned $15K annually?
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Financial Samurai Reply:
February 7th, 2013 at 9:37 am
Not sure, as that is close to poverty wages for a single person. Why do you ask?
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Terry Reply:
February 7th, 2013 at 10:14 am
Because everything I read – especially your blog – tells me I have abysmally ‘failed’ to save enough, and I’d like to know exactly how much do these people expect me to have saved.
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ristlin Reply:
February 8th, 2013 at 7:33 am
Terry, if you are living out in a low-cost area where rent is about $400 a month, etc. then I’m sure you can cut the numbers Sam listed on his tables to about 1/4.
As always great analysis and representation! We plan to have our house paid in full and a hefty dividend income by the time we retire. I am currently trying to convince my parents to focus on paying off their house during their last few working years instead of funneling money into their 401ks. They have loss the benefit of compounding and should look to lower their monthly expenses as much as possible.
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ristlin Reply:
February 8th, 2013 at 7:48 am
I work for a non-profit so we don’t get paid much (sad face), but they do offer free 8% retirement and an additional 4% match. So right now I’m sitting at 16% toward my retirement account, pretax, and I save an additional 20% after tax for investments.
I’m 25 and my situation reflects most closely to your low-end “actual” 401k table with about $12k in my retirement account, but I do have another $30k in stock and plan to work aggressively to push it up to $50k by the end of the year.
Real-estate seems like a non-option for me (Washington, DC) due to the crazy prices and it being impossible to even snag a fixer before investors swoop in. There are a few places in less developed parts of the city going for around $100k (studio co-ops) with the promise of higher values in the future due to redevelopment over the next 10 years, but I’m indecisive about that — funny enough, because the investors seem to steer clear from those areas.
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Financial Samurai Reply:
February 8th, 2013 at 9:18 am
Ristlin, one thing to note.. the expensive properties today generally always seemed expensive yesterday. I’ve kept track for the past 20 years, and things never really change. In fact, the expensive properties get even more expensive relative to everything else.
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I agree with your analysis. However, there are many factors that you can’t consider unless until you have retired and forced to deal with them. For instance, if you face medical bills due to poor health ever since you begin your retirement at age 65, $1 mill may be a challenging figure. On the other hand, if you live in a rural community with good health, $500K may very well be a good asset to survive for a long time.
I still agree that as you get older and make more money, you should save even more.
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Financial Samurai Reply:
February 20th, 2013 at 9:05 am
True. Health insurance is a big one… disaster health insurance more specifically so one doesn’t have to pay $ 1million worth! Perhaps Obamacare can help by the time we’re really old yes?
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Just started reading your site and I must say I like it very much. Here is where you and I may differ however. I am beginning to worry very much about 401Ks, Roths, IRAs etc. Why? There is legislation right now floating in congress to push some of the money invested in these plans in government bonds. I am sure the wonderful government of ours will “suggest” to do so in order to guarantee a “return” and will write laws to make sure we have no choice about it. Mathematically our country is broke, especially if one considers future unfunded liabilities which conservatively are around 80 trillion. You think the government will not target the only money left to most Americans somehow to “help” with their promises to people that think they are entitled to free food, free, health care, and free ride?
Its also a mathematical certainty debt base money will be inflated away to nothing and judging from history this happens to the strongest of currencies unbaked by precious metals every 40 or so years. Considering Nixon got us off the gold standard in 71 we are in that window right now, with massive amounts of paper being created not only by the Fed but the ECB, and Japanese center banks. Its a situation where the financial world has never faced before so who knows how its going to end. Unless someone here wants to argue we will cut entitlements by a wide margin this can’t be more clear. So what is a 25-35 year old to do?
No matter what people save, the asset class and vehicle they save in is as important.
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Financial Samurai Reply:
February 20th, 2013 at 9:06 am
You may enjoy this post then John: http://www.financialsamurai.com/2012/03/29/disadvantages-of-the-roth-ira-not-all-is-what-it-seems/
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Hi Sam,
I am so sad I never knew about your blog until today as I am an avid follower of Susie Orman, Robert Kioysaki, Dave ramsey when time permits. Just so luck that today i found this blog accidentally. I promise to be a follower from now on. I have some questions for you Sam. Do you have an article or blog that discussed what to do if you are in DCP (no 401K to speak of) and 403b? Here are some details: I am 43 (just turned today), and sadly I do not have enough saved. Here is what I want to known. I work for a company that only offers 403b (no 401k), have been working for them for 16 years and currently make 81k in salary. I own a rental property (valued currently at 215K), which has $200 in monthly positive cash flow. I also own my primary residence (valued at 450K). Networth is around 130K after calculation of all debts. My company provides a defined benefits pension and if I work for another 10 year with reciprocity agreement from a prior agreement I would have 30 years of service credit. I am a father of 2 young kids (7 & 9 yrs) and a wife who is stay home as she has not been able to find any job but saves us a lot on child care expenses. In our 403b currently we have 107K saved. Based on your calculations, what would you suggest for us as we don’t have the 401k option. I look forward to your response. Thank you.
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Financial Samurai Reply:
February 24th, 2013 at 7:06 pm
Hi Steve,
Welcome to Financial Samurai! Happy birthday!
Your position is the envy of many given the defined pension plan. If you get credit for 30 years of work, I figure your pension will set you for life given your other savings and rental income. Definitely work those next 10 years and if you can, max out your 403b. Take your estimated annual pension income, divide it by 4% to estimate what it’s capitalized value is. That is your true savings! You will be shocked by how much you have.
Also, take a look at this page on a free wealth management tool I use to keep track of my finances. I feel some relief that I no longer have to manually track my 28 accounts anymore and just have them all in one place. Your current situation and net worth is ideal for taking advantage.
Look forward to seeing you around my site!
Best,
Sam
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How did you see 25K in company match when the max you are allowed to contribute to 401K at 35 is 17.5K??????
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Financial Samurai Reply:
March 20th, 2013 at 6:57 am
Profit sharing. When you’ve been at a company for a while and reach certain levels, you not only get a company match but profit sharing. Things add up.
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Sam, I like how you show people that they need more money for retirement. I did think that the minimum amounts are a little off. With a BS in engineering, my first real job in 1999 only paid 28k a year. The initial 8k and the subsequent maximum 17k to my 401 would have left me a little poor in the rent and food department.
Given that the first three years of my first two jobs netted pretax of only 100k, the 42k to my 401k you suggest, but first take out $7500 for welfare/SS that I will never see, and I only have 16k a year to live on. throw in a few taxes to uncle sam, and it hard to pay for parking downtown at the new job.
I prefer to think that I am able to make up with aggressively paying down mortgages, paying the max into 401k, investing in mutual funds, stocks, and savings. the magic 401k levels you speak of are only for people that hit the ball out the park for their first jobs making 50k a year or more.
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Financial Samurai Reply:
April 9th, 2013 at 6:59 pm
Hi Heath,
Thanks for your perspective.
The numbers are definitely tougher to swallow in one’a 20s, but are easier to match later on. Perhaps with today’s salaries, these numbers are even more feasible.
Sam
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@Newbie: If you are doing what I think you are, be advised that I know several people who did this and all were audited and all were told that this was not correct.
That said, the only issue I take with the artical is with the percentage return. I agree that using 5% might be a good lower bound as many people are not aggressive in their youth, nor their older years. However, simply changing this to 8% and you get nearly US$8m. This is the power of compound interest and why it’s critical to start saving the max as early as possible. If you reduce this in half (still at 8%) you still end up with a ton of money (even in 40 years inflation adjusted).
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I was searching for answers and came across your site. I, unfortunately, did not get started with my 401K till late in my life. My husband has a wonder retirement plan and doing very well right now. I however, need help to understand what it happening with my 401K plan.
I am trying to roll my small 401K (which I setup to nest egg for my grandchildren’s college education. I am no longer working, decided to get a higher education, and now looking at the best way to invest my small fund.
Looking over my summary, I see that for the year of 2012 I earned less than $1.00. I have over $7,000.00 in my 401K. In 2011, I earned less than $30.00. The summary states that there was no funds spend for administrative purposes, but money spent to pay out other employees who have retired. Could you explain to me why I am paying other employees retirement funds to them?
I have never been able to move this money into high or low, can’t even look at where my money is being invested, and my ex-employer stopped funding in 2011. All I know about this plan is that it is a “Safe Harbor.”
Thanks for the help.
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Hello Sam:
I have a coworker (age 48) who believes that all he needs to retire in the Bay Area is around $500K. I’ve tried to explain it to him, and point him to any number of sites that explain why not, but he doesn’t buy it. Hence, he doesn’t, contribute that much to his 401(k). He is an engineer making, I estimate, $120-130K/year. Fairly financially sound, just remarried to an experienced teacher (who despite the hype, make good salaries even in the Bay Area).
His new wife is over 10 years younger, so I say that he’s probably all right as he can count her her pension, too. He rents his old condo, almost paid off, generating a little positive income. He and his wife also bought a new house. He says his personal monthly expenses are around $1700, not counting mortgage which he is on track to pay off by the time he reaches retirement. I get that his commute expenses will decrease by a few hundred dollars per month (in today’s dollars), but he says that he should be able to live fine on $25-30K/year net. He also counts on not paying that much more per month for supplemental Medicare. Any advice on convincing him?
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Financial Samurai Reply:
April 26th, 2013 at 10:12 am
Hmmm, if he’s convinced, it’s hard to change his mind. When does he plan to retire?
With a spouse 10 years his junior, he can count on her for at least another 10 more years as she “catches up” to him. If he really is going to pay off his mortgage by the time he retires and has done the math, he can probably retire just fine based on his desired lifestyle.
Here’s a post you guys might like: http://www.financialsamurai.com/2013/03/19/what-does-early-retirement-feel-like-the-positives-and-negatives/
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Hi, thanks so much for this information.
I’m nearly 27, I am a college graduate with no more student debt (PHEW!!), but I also don’t make a lot of money.
I live in a small 1 bedroom apartment 30 minutes outside the more expensive area where I work, with my husband. We both make $26,000 (gross), and over my income goes to non-negotiables (modest living, car payment, gas, insurance of all types (renters, health, car) and monthly medication (not covered by insurance)).
What I am wondering is how can I save enough to ever live comfortably? Your case studies above are all for people who make well over the median American income of around $45k — and if that’s the median, then you know where 1/2 of us lay (lie? I always screw that one up). :(
Thanks for your help. I don’t want us to end up working at 80 years old. I work for a global company with a lot of room for growth (just got a promotion and a raise, but it only increase my gross by $2500/yr), so it is only a matter of time until I am closer to the average American’s yearly wage. But I don’t want to have the average American’s savings, I want more, and think starting early is key. I have $780 put away, started contributing in July 2012. What can I do NOW to help me save more money? To help my 401k grow? To help me be able to buy a house and build equity while I grow my 401k? I should really get a financial advisor, but how much money would that cost? HAHA
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My retirement consists of a pension (40 – 50% of high 3), social security (fingers crossed), and my 401(k). I didn’t see anything is this highly informative article which addresses savings in addition to pension and social security benefits. Tax liability is a big concern for me come retirement, so I am always looking for solutions to keep the IRS away from my door. Are there strategies I can put you work given my retirement outlook?
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Great article Sam!
Unfortunately, I am a poster child of the issues you bring up in this article. I thought I was being “above average” and purchased a number of single family homes to rent out between 2004 and 2006. By 2008, I had lost them all, along with a majority of my savings.
My wife and I (creeping up on age 40) are now finally back to even from a net worth standpoint, but are quite aprehensive around how to make up for lost time and on a limited income ($100K between us – as compared to income levels of many of your readers).
I know I may have to settle for shooting for just “average”, but what path would you suggest I use to get started again?
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Financial Samurai Reply:
May 7th, 2013 at 11:20 am
Hi Kevin,
Always good to have a new reader on board. Sorry about the homes. I experienced your pain as well, and have one property that is sucking wind, but I was able to do a loan mod this past January, so I’m holding on forever.
When you say your net worth is back to even, does that mean 0, or back to where it was before 2008? My suggestion are several fold:
* Raise your savings rate as much as you can until it HURTS. If it doesn’t hurt, then you aren’t saving enough. Thankfully, we all get used to the pain. Once we do, raise the savings rate more.
* Stay on top of your finances more than ever before by signing up with Personal Capital. It’s a free online wealth management tool I use that tracks my finances (ins and outs), net worth, and checks portfolio fees for my 401(k). To grow your wealth, you need to know where your wealth is! It only takes a minute to sign up.
* Mentally plan to work for 20 more years or longer. I don’t know how much you planned to work in the past, but have this mindset and do everything you can to beat it (retire earlier).
Best,
Sam
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Hi all, i live in the northeast and make close to 60,000 a year. For the past two years i have been putting 25% in my 401k, my employer matches 3%…i currently have 61,000 in there and i am 34 years old. Any estimates of what i will have if i keep this up for another 10 years
Thanks
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Financial Samurai Reply:
May 8th, 2013 at 8:49 am
What does 25% of your salary equate to in dollar terms?
In 10 years, my 401(k) grew to around $250,000, but I maxed it out and have a different match than you. After 13 years (since 2nd half of 1999), my 401k topped out at $400,000 and I’ve since rolled it over to an IRA to invest in other securities.
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Sorry i forgot to add the funds are split between company stock, a 2020 plan and a 2045 plan
Thanks
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You do not know what you are talking about and need to check the true facts about people living on retirement income. There is more to retired people then just paying the rent. They have other obligations to self and family just like the others that are not yet retired. Give me a break who in the real working class engineers are not the norm an for the working class. You live in a false world. Wake up get real.
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Financial Samurai Reply:
May 13th, 2013 at 8:44 am
What is your reality? Who are you?
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I’m 42 and have been maxing out my 401K since I was 22. I’ve made over 100K since I was 28. My employers have always matched it at least 50% and for several years 100%. I spread out my investments between bonds & stock, but the stock market crash of 2000 and again in 2006 really took it’s toll on my account as it did everyone I know. I’m now sitting on a total of $244,000 in an IRA and a 401K with my current employer. How is it possible to get to the numbers you state above? I watch my accounts and re-balance when necessary, but I’m not an investor. We live in a modest house, drive old cars, don’t take fancy vacations or own any jewelry. We don’t have expensive hobbies and we definitely don’t have any designer clothes. We have finished saving for our children’s college funds and have $30,000 in emergency fund. How do we do any better than that? I’m so frustrated when I read articles like this. The lack of funds in my account are not due to lack of saving.
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Financial Samurai Reply:
May 15th, 2013 at 10:01 am
Ann,
I’m concerned too given you mentioned you’ve maxed out your 401(k) for the past 20 years. Let’s take an average max out contribution of $12,000 a year, that’s $264,000 right there with no growth and no contribution match. Even just a 3% contribution match puts you well over $300,000 during this time frame. Do you think this is the case of selling at the bottom and not getting back in? I’ve been there before, so I understand.
What I do recommend you do is get a firm grasp on your finances by signing up with Personal Capital. They are a free online wealth management tool I’ve been using to keep a hawkeye on my net worth and my investments. They have a 401(k) Fee Analyzer which I ran my portfolio through that revealed I’m paying $1,700 in fees I had no idea I was paying! Because of Personal Capital, I’m saving money, honed in on my risk, and have steadily grown my net worth in less stressful way. Signing up and uploading your accounts to keep track is simple. I highly recommend you run your IRA and 401k through their free tool. Once you have your accounts uploaded, click the Investment Tab and 401k Fee Analyzer link on top.
The main goal is to know where your money is and prevent leakage.
Regards,
Sam
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One item that may impact statistical analysis. I am 35 years old. My first job out of college (age 22) was with a medium/small company of 5,000 employees. The company did not offer a 401K program until I was 26 years old. Prior to that there was only a poor performing pension plan. While I have always been active in my retirement planning, when I was younger I never strayed far from the safety net / hand-holding offered by my employer.
I don’t believe my situation is unique and offer my experience as a suggestion as to why there may be some statistical anomalies in the older generations.
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Financial Samurai Reply:
May 22nd, 2013 at 8:39 am
Tad, thanks for sharing your experience. Hopefully folks with no 401(k) program will therefore save their after tax income at the same percentage amounts. Unfortunately, I think once money hits our bank account we have a propensity to spend instead of save.
Welcome to my site! If you get a chance, I would sign up for Personal Capital and run your 401(k) and other portfolios through their 401k Fee Analyzer under the Investments tab in the top right. I ran my through and discovered $1,700 a year in portfolio fees I had no idea I was paying! If you aggregate all your assets, it will give you a networth pictures and help you see where you can optimize. It’s free and only takes a couple minutes to sign up.
Cheers,
Sam
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