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. Most Americans don’t have pensions.
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 $101,650 at the end of 2013 according to a study by the Transamerica Center for Retirement Studies and Vanguard. 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 $218,000-$350,000 according to my 401(k) retirement savings guide instead of $101,650. So what happened to the missing $117,000 to $239,000?