The Average 401(k) Account Balance Breaks $100,000: Here’s How Much To Save By Age

Average 401k Balance Chart

Source: Manning & Napier

Investment management firm Vanguard reported the average account balances for 401(k) plan participants reached a record high of $101,650 at year-end 2013. Bust out the champagne! Who said there’s a retirement crisis on our hands?

Based on the Investment Company Institute (ICI), 51 million American workers were active 401(k) participants. 51 million is roughly half the US workforce out of a total population of 313 million. Hence, if the average 401(k) balance for half the US workforce is $101,650 then I dare say things aren’t as bad as they seem.

With MyRA or IRA making up for the other half of the working population with $5,500 a year contributions and Social Security, personal savings, personal investments, and pensions taking care of the other 200 million Americans, we’ve got America covered.  (See: How Much Should I Have In An IRA By Age)

OK, maybe it’s not so easy. We’ve got a lot more work to do to ensure a great retirement life, so let’s revisit my recommended 401(k) savings amounts by age or work experience to make sure. I also provide a savings guide by income chart as well. 

RECOMMENDED 401(k) AMOUNTS BY AGE OR WORK EXPERIENCE

401k Contribution Table By Age

The proper rows to compare the average 401(k) balance of $101,650 are ages 30 and 35 due to the average age of Americans.

My numbers are $29,000 – $250,000 higher than Vanguard’s reported average because we are not average. We are personal finance enthusiasts who spend time reading and writing about money, retirement, and financial freedom. The average person is saving less than 10% of their income and buying cars worth 50%+ of their annual gross income (median price car is now $31,000 vs. the median household income of $51,000). In other words, the average American will be depending on us to support them. Awesome!

Assumptions: My figures are aggressive because of the assumptions a person finds full-time median income employment by 23, and maxes out his or her 401(k) by 26. I also assume people care about their financial future, which is not apparent based on existing graduation rates and savings metrics. For the low end of the chart I conservatively provide no growth. For the high end of the chart, I estimate a 5% constant rate of return throughout their entire working lives. Both assumptions are conservative given the historical ~8% annual return of the S&P 500.

Flexibility of Chart: The recommended 401(k) amounts above can also be used as a guide for all your pre-tax retirement accounts such as your IRA, ROTH, ROTH 401(k), SEP IRA + investments by age if you wish. You can also use the chart as your combined savings for you and your spouse, although I always highly recommend each spouse build their own financial safety net because things happen. But based on my recommended net worth allocation, there has to be more to these numbers – namely property, private investments, your business and a potential X Factor.

THE IDEAL OVERALL SAVINGS SCENARIO

In a financially robust world, I’d like everyone who has access to a 401(k) to max out their 401(k) and then continue to save and invest all they can in an after-tax investment account. Maxing out your 401(k) probably requires around a $50,000 income to feel comfortable, although there are many examples of folks who are able to put away $17,500 on much less.

To “feel comfortable” though, is really a luxury. If you feel comfortable in your savings journey, then you are not saving enough. The goal is to really try and increase your income while maintaining your savings habits. Have a look below.

Recommend Savings Amounts By Income Table

As you can see from the chart, maxing out your 401(k) and accumulating post-tax savings gets easier the more you make. The system I encourage everyone to undertake is to max out their 401(k) first and then multiply the savings % in the chart to your after tax income to save more. So long as you are maxing out your 401(k), a realistic worst case scenario is that you end up with the amounts in the “Low End” of the first chart in this post.

The ideal income level hovers between $150,000 – $200,000 because you’re able to max out your 401(k) and still save $35,500 – $53,000 after tax if you stay disciplined at a 35% savings percentage. Your marginal Federal tax rate isn’t egregious at 28% either so you don’t feel like you’re getting pounded by the government. (See: Expense Coverage Ratio Targets)

NOBODY SAID SAVINGS WOULD BE EASY

The $101,650 average 401(k) figure for the end of 2013 is a psychologically important number. With over $100,000 in savings, a 10-20% move in performance really starts making a difference compared to the maximum 401(k) contribution of $17,500. It’s all about building the financial nut so that your returns start overtaking your contributions.

Once you get to significant milestones such as the $100,000 mark, you’ll get even more motivated to save more. Corrections in the stock market will feel more painful. But over time, you should figure out a proper asset allocation of stocks and bonds that matches your risk tolerance.

Make savings a priority by continuously thinking about the financial freedom you will achieve. The sacrifice is worth it because you’ll realize after a while that savings is no sacrifice at all.

How much do you have in your 401(k) or rollover IRA?

View Results

Loading ... Loading ...

Free Wealth Building Recommendation

Run your portfolio through Personal Capital’s free “401k Fee Analyzer” tool. The tool will show you exactly how much you are paying in fees a year, your total fees you’ll pay until your desired retirement age, and how many years your fees are lopping off the years until retirement. I ran my 401k through the tool and it showed I was paying $1,700 a year in fees I had no idea I was paying. As a result, I reallocated my funds into lower cost index funds of similar investments to save about $1,300 a year, and more importantly, about 2 years less time I’d have to wait to achieve my projected 401k goal.

Personal Capital will also keep track of your net worth, help you manage your budget, and analyze your investment portfolios for various risk parameters based on your risk tolerance. It’s free and only takes a minute to sign up.

Updated 12/2/2014. The stock market continues to do well and the S&P 500 is now at record highs. Don’t forget to rebalance at least twice a year.

Regards,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

You can sign up to receive his articles via email or by RSS. Sam also sends out a private quarterly newsletter with information on where he's investing his money and more sensitive information.

Subscribe To Private Newsletter

Comments

  1. says

    I’ve been working for 5 years and am currently in the $26,000 – $50,000 category. I’ve read a report that in Canada the average balance in our RRSP (401(k) equivalent) is only $60,000. I wonder if that’s because we have more financial options available to seniors other than personal retirement savings and social security. For example, a larger proportion of our work force is in the public sector, where jobs tend to have more defined benefit pension programs so those workers don’t need to save as much :)

  2. Austin says

    I hate to say this here, because people will think it’s crazy, but I switched to only contributing the minimum amount to receive the maximum match because I am afraid that the government is going to confiscate retirement assets, in some form, sooner or later.

    • Bob says

      I don’t think this is crazy at all, it’s a real possibility. Also keep in mind that while it’s almost impossible for most of us to save too much for retirement, it’s not at all impossible to place too much into 401k/IRA accounts that are mostly unavailable for withdrawal until 59.5 years of age. There is need for a balance between a 401k/IRA contribution that gathers the full company match and a contribution that meets the maximum allowable by law; a contribution rate somewhere in between allows for investment into other retirement vehicles which of course are taxable right now but also allow access to their monies before 59.5 years of age (ie: early retirement).

      • Eric Shun says

        IRS Rule 72(t) allows easy withdrawals from one’s IRA anytime before age 59.5. The rule is well-known and widely used. Like my father did in 1993, I plan on taking advantage of the rule at age 55.

    • says

      Why are you worried the govt will confiscate retirement assets? If that were the case, wouldn’t you be better off not contributing at all?

      I think it’s a stretch to think that the US govt is going to take your retirement accounts away. It would be political suicide for anyone who even mentioned the idea. Perhaps in the form of higher taxes, but that doesn’t mean you shouldn’t save for retirement, just that you should diversify in terms of tax-now and tax-later accounts.

    • says

      It is a valid concern the way the government continues to grow bigger and bigger, which is why at the very least, don’t contribute or convert to a ROTH and give up by paying taxes up front.

      Always stand strong and fight the good fight until the end!

  3. says

    Yikes! I have some work to do! I’m contributing more than double what my company matches. I’ve had access to a 401(k) for about a 1.5 years, but I also opted for the Roth 401(k) which makes me lean towards a traditional IRA. I do make less than $40k from my regular which obviously has big implications for my 401(k).

    • says

      Erin – It would be only natural for you to have a lot of saving ahead of you with 1.5 years post college. Should be exciting! The good thing is, you’re reading this post and looking at the charts now instead of 15 years from now. These charts are what could be!

      Best, Sam

  4. Retireby30s says

    The thing that really strikes me is the need to invest early. All of this is about getting in early regardless of the $100K average because $100K at 50 is failing while $100K at 27 is killing it.

    Also don’t like the averages these firms use, should be Median by age bracket. That would hopefully show even more clearly that people essentially invest or they don’t. If you’re in the 50’s bracket there are likely several people in the millions distorting that number dramatically.

    Anyway keep maxing your employer match a minimum (even if you have debt its free money! 100% return!) and keep stacking away as much as possible. Lifestyle inflation is the long-term killer and not investing at all is the immediate kill switch to your financial future.

    Get em!

  5. David M says

    401k had gains of about 23% last year and my Roth IRA had gains of about 28% lat year.

    I put in the maximum into my 401K which I think was $17,500 last year. I also put the maximum into a Roth IRA last year, $5,500. In total those represent about 17% of my pay.

    At the end of 2013 my 401K was at about $630,000 and my Roth ITA was about $90,000.

    Am I surprised, yes, surprised it is even that high. Average Americans, not average readers of this blog, are spenders not savers.

  6. Amy says

    I’m curious if your suggested ranges are per person or per couple. Doesn’t seem clear to me. Are you expecting the average retired couple to have double that amount? In which case, you are saying that we’d need $5Mil to feel comfortable in retirement. Or conversely, if only one person worked, that retirement needs are half?

  7. Sunil says

    We are around 40 and we are 50% short of the low end!! We only started putting money in 401k and IRA aggressively after discovering this blog, which was only a few years back. We are at the 2nd highest level in terms of income so there is no excuse for not having a bigger nest egg. Most of our investments are in real estate. SO while our net worth is around 1.2 M 401k is a small portion of that when it should be lot higher. We are taking those numbers very seriously and are maxing our contributions… we are currently contribution close to 50k (including company contribution), so we are hoping to make it up and at least reach low end by the time I reach 45 and be close to high end when we are 50. Thank you Sam for opening our eyes to these numbers!

    • says

      Hi Sunil – With the second highest income bracket and lost of real estate as part of your net worth, then you’ve got a straightforward and fun journey ahead of you. In fact, you might have a much easier journey than others who strive to get your income and build a real estate portfolio since clicking buttons to buy index funds, stocks, etc is easy in comparison.

      Diversify that net worth!

      Best

  8. says

    I’m in the middle end of your chart. Actually, $100k isn’t bad at all. I guess that’s just the people at Vanguard, right. The last I heard if you take more people into account, the retirement asset is pretty low at below $5k.
    Luckily, I’m able to keep investing in my retirement fund and it should keep growing for many years to come.

  9. says

    I really like your posts like this because it gives those of us who want to be above average savers/investors a goal to shoot for. Obviously just going by what “average investors” do is not going to get most of us to where we want to be!

  10. Travis says

    Fellow VA guy here and I enjoy reading your blog. Attended UVA and still reside in the state. Wanted to get a clarification on your #’s above. I am 25 and have ~$50k in roth 401k and soon to be $20k in Roth. Do you combine those amounts for your chart and do those amounts stay the same if you are contributing to roth accounts? It seems like they would be slightly lower given you are paying in with post-tax $’s and banking on a benefit down the line. Could you take projected tax rate at retirement/withdrawal to arrive at a Roth number that would be comparable?

  11. Matthew says

    Sam,
    Great post, I am always confused why more public employees do not max out contributions to both a 457 and 403b plan. If your school district or government agency offers both you can put $17,500 into each one.

    • Brad says

      Because most public employees don’t make $17,500 more than they need. More likely, however, is that most public employees are vested in some type of pension fund, so they don’t feel like there’s a need to contribute outside of that.

      • says

        I would gladly trade my 401(k) for a pension that paid 70% of my last year’s salary for life starting as late as 65.

        If you have a pension, you are the true winner and not us silly private sector folks who are trying to fund our own retirements.

        • Winston says

          Really? When my mom retired as a Texas public school teacher after ~30 years of service, she was making $44k per year. 70% of that doesn’t sound so badass, does it? Good thing we lived very frugal lives, allowing her to save a shitload of her take-home. Here’s a news flash: most public-sector jobs (with pensions) pay shit. The pensions are one of the few reasons to even work the job… unless you’re super-dedicated to your profession, like my mom.

          • says

            To make $30,00 in pension for life, a private sector employee needs to save $1.15 million to earn a similar amount risk free for life.

            I’d say your mom did pretty well for a school teacher!

            • Winston says

              Except you have to work for 30 years in the system to get 70% (the multiplier is YEARSofSERVICE x 2.3%), and you also have to AGE + YEARSofSERVICE>=80 to get that benefit, otherwise it drops (so realistically, you’re working until age 50 at a minimum). Oh, and they deduct a retirement contribution from your paycheck too… so you’re paying for part your pension just as if it was a 401(k) contribution… you’re just not having to pay as much as if it were 100% funded by you.

              I’m pretty sure that I could blow that $1.15 million figure out of the water with a decent (i.e. non-teacher) salary, a 401(k) and 30 years of service… and live better while doing it. (By the way, I calculate that you’d only need $875k or so, assuming one lives to age 85. $1.15MM would be correct for living to age 100, which is perhaps what you were calculating.)

              The only reason you’d want to do the trade is because you made so much cash during your last years of employment!

  12. Kay says

    37 yrs old. 13k in 401k. 17k student loan debt. 83k remaining mortgage (95k value), $0 savings, $223 checking, 790 credit score.

  13. Josh says

    Fantastic info! What’s your opinion of self directed brokerage option for 401k versus plain mutual fund option only 401k? My company offers both, and I kept investing in boring index fund, at least for my 401k since I already have an individual brokerage account.

    I’m tempted to switch over to brokerage option for 401k too, but I keep reading most people, including professionals, can’t beat the market over long term, so need to constantly curb my desire to try, at least in the 401k. For the record, my 401k return investing in index fund did beat my brokerage account return by a decent margin.

    • says

      I’d just continue to keep things simple and invest in index funds for your retirement with 80%+ of your holdings. The other 20% or less you can try and go your favorite active funds.

      Spend your time focusing on your work or X factor instead, especially if investing isn’t your forte.

  14. Ross S says

    Very interesting and eye opening. Can you explain the math behind the rate of return and the progression of the net worth?

  15. Nick says

    Looks like I’m right on target. 35, with $331,000 in my 401K. It was $343,000 a few weeks ago, but you know how that goes. Still, I’m very proud of what I’ve been able to accomplish. I have been contributing to my 401K since I was 21, starting at 15%, which was roughly $9K a year back then, and slowly increased my percentage along with my raises to finally get to the max contribution. I’ve been maxed out every year since 2004 and it’s an amazing feeling. Watching the 401k balance progress (and sag; 2008 was a tough year, but 2009 fixed those woes for me) has been a wonderful motivator. I’m now growing a separate Vanguard investment account on the side, which is nowhere as big yet, but it’s ticking up there week by week.

    Saving is a challenge… and some months it is downright hard, but the more things run on autopilot the less I even consider that money as being spendable. At this rate I feel pretty confident about my chances at a decent retirement… Now… to stop fretting over the -4.5% this year ;)

    • says

      Hi Nick,

      You are a model example of what I’m looking for in more folks who have 401(k)s accessible to them straight out of college. You started slow, slowly maxed it out, and STUCK WITH maxing your 401(k) out since college.

      And from what I can tell, you’re having fun with savings too! Care to share an income range?

      Sam

      • Nick says

        Thanks, Sam. Sure, I’d be happy to share income stats. I’ve worked the majority of my career in Los Angeles, so my cost of living is high, but my pay has been generous as well. I’ve been extremely lucky and tried to best take advantage of that.

        When I was first starting out, I was making around $55K a year, which was a very good starting salary, but easy to blow through in the Los Angeles area. Over the years I had a few raises up to about 2004 which put me at $75K a year. It took me nearly another six years to get over six figures, but since then I’ve had a few generous raises due to other job offers that came along.

        This is the kicker, though. I’ve forced myself to live under my income for a long time, and as I got raises I tried to take that additional income and save it or pay down debt I had. It wasn’t always easy, and I didn’t always stick to it, but it did allow me to pay off my student loans completely in four years and I’m now completely debt free as well.

        A lot of this was luck, being in an area that allowed for higher income, and being disciplined, because as I said before, LA can be a very expensive area. Also, having studied Econ, I agree wholeheartedly in the idea that we will find expenses to match our income levels. You can make $150K a year, but without a plan to save and manage your money, you will still be living paycheck to paycheck, like unfortunately so many of my friends do, and end up scratching your head at the end of the year asking yourself, “What the heck did I even spend that money on?”

        I’ve been trying to push my friends into, at the very least, putting money into their 401K. I encourage them to put a little more than they feel comfortable doing… I’ve found the pain only lasts a few months, and then you get comfortable at the new income level. You’ve said it very well, though. You need to see where your money is going and how much is really coming in. It’s scary when so many people don’t even really know how much they clear a month. Once you start identifying what you spend, what you love, and what you can do without, the rest becomes easy.

        Now, I know I make a pretty high salary, and I understand that. What is easier for me, is much much harder for someone who is making near the national average. Cost of living is one thing, but if you are only bringing in enough to get by, saving is just something you have to get creative with. It wasn’t always easy for me… Actually there have been years where it was very hard, and I definitely haven’t mastered the perfect disciplined budget, but I’m working at it, and so far I’m happy with the results.

        • says

          Thanks for sharing Nick. People need to realize that higher incomes are generally earned in higher cost living areas. There’s no need to apologize for being able to max out your 401(k) by earning an ever higher income. You earned it, and you are saving accordingly. As you say, it’s easy to blow more money the more you make.

          Perhaps one day you’d like to share a guest post about your retirement savings strategy, what motivated you to contribute aggressively to your savings, and why your friends who earn similar incomes don’t seem to be doing the same.

  16. Kristy says

    I wasn’t sure if this was just for 401K or total retirement contributions which would include IRA’s and Roth IRA’s. In any event, I am 35 and DH is 36. The last I looked (and it probably went down) I had roughly $200,000 in my 401K and about $71,000 in a Roth. DH has about $70,000 in his 401K and the same in his Roth. We save 35% of our gross, but this includes 401K, IRA’a, kids college funds and other taxable accounts. I think we are well on our way to a decent retirement and might be able to retire early if we so choose.

    • says

      Kristy – As noted in the post, you can use my chart as consideration for ALL your savings (pre and post tax) if you wish. I originally intended it just for one person’s 401(k), but I don’t think anybody can argue that these numbers would still be decent if they were all combined for one person, or a couple.

  17. says

    Honestly, that average is interesting conversation fodder but as you know is largely meaningless. Having it broken out by age as you do is much more meaningful, as $100k has a much different meaning for a 30 year old than it does for a 50 year old. I’d also like the see the median number alongside it, as the average can be pretty skewed by bigger numbers.

    • Kay says

      Agreed. If not meaningless, extremely skewed. Especially considering 50% of Americans are not saving for retirement at all.

      Also consider that 75% of individuals make less than 50k per year. Of that group only 23% contribute at least $2500 per year to their 401k.

      As some have noted, the goals and figures used on this site are simply not realistic or relevant to the vast majority of working Americans.

      • says

        It is your choice to view Vanguard’s figure and my recommendations as meaningless or not.

        My hope is that readers of Financial Samurai don’t end up like a “vast majority of working Americans” who look back and wonder where all their money went.

        • Kay says

          The vast majority of workers earn so little that the money they do make has to go towards basic living expenses and nothing else. Do they really have a choice? As usual you blame the income / savings crisis to laziness and poor decisions on part of the individual when it is much more than that. I could understand if we were talking about 25% of the population but we’re not. 75% of Americans live paycheck to paycheck and have no savings.

          Blogging to the ultra wealthy about how to become even more ultra wealthy isn’t a challenge. And really, is money seriously an issue for the top 5-10%? If you want a challenge (and a much larger audience) you would start giving advice to the people with real money management problems. What you’re doing here is more or less hobby / entertainment for the rich more than it is providing useful needed information. It’s your site and you can do what you want but you should make it clear to your readers that your site is not geared towards people with average incomes. Doing so might even keep us riffraff from giving you a hard time now and again.

          • says

            Kay, read your comment again. Do you see how self-defeating your tone is? You call yourself riff-raff, you say these posts are just for the ultra-wealthy, you think I’m blaming people for not working hard enough despite so many posts about the desire to level the blaming field, yet you ignore that facts and the guidance.

            Creating wealth starts with the proper mindset, and I’m afraid you have an improper mindset that will keep you from optimizing your finances. You’ve got to believe in yourself.

            Would you like a coach? Let’s ping each other at 5:30am every morning and work an extra two to three hours longer than our peers and see what happens after one year. I guarantee you won’t have to be smarter than anybody. Simple math will dictate we will grow faster than the average.

        • says

          I don’t think your recommendations are worthless. I actually think they’re helpful because they’re broken down by age and because they give someone a meaningful target. They’re thoughtfully done with a goal in mind, meaning they can be used purposefully. That’s valuable.

          What’s meaningless is any stat citing the average American’s 401k balance. It’s just not applicable to almost anything. Again, comparing a 30 year old to a 50 year old in terms of retirement savings is pointless, but that’s what that average number is doing. It also isn’t based in any kind of thoughtfulness in terms of what a person SHOULD have saved, so it doesn’t provide any value as a benchmarking tool. I honestly have no idea what we’re supposed to do with it.

          • says

            Do you not see the analysis of comparing the average age to the average 401k amount?

            I created my recommended 401k amounts by age and work experience before Vanguard came out with their stat. I just used them as a basis for comparison.

            Can you share your age and 401k so I have a better idea of why there’s so much push back?

            Here is another post that details my assumptions further: http://www.financialsamurai.com/how-much-should-one-have-in-their-401k-at-different-ages/

            • says

              I think there’s some kind of miscommunication going on here.

              I think you’re numbers are helpful and well worth understanding as a potential benchmark.

              I think the single $100k Vanguard number is not. I’m not sure what value that single number has to any individual. That they break it out by age is somewhat more helpful, but still much less useful than what you put forth because it’s an average, not a target.

              I tried to be clear about that in both comments, but I guess I failed. There was no intention to be disrespectful of the work you put in to create your target savings amounts. Quite the opposite actually. My only point is that all of these reports that various sources put out about average 401(k) balances have very little usefulness to the individual trying to plan their retirement.

              All the best.

            • says

              Matt – I don’t mind getting criticized, it’s no big deal. My original comment was at your commenter, and not you.

              But I do want to figure out SOLUTIONS. Maybe that’s just the MBA in me always looking out for solutions b/c just looking at data is nice, but not very helpful.

              So my other attempted solution was to try and figure out the veracity in the $101,650 figure by Vanguard by doing a poll. So far, it looks like after ~640 entries, the majority of folks are in the $100,000 – $200,000 range. So at least from my survey, the Vanguard number is in the ballpark.

              So carrying on, what kind of solution can you offer? That’s what I’m really excited to read about rather than discrediting data. Maybe you can write a post on your site with a solution and site our arguments here and what I’ve done?

              Thanks

  18. Lexington says

    Excellent post. I especially like the guidelines you set forth to let me know how I stack up to the ideal amount in my retirement accounts. I spent my 20s in saving up for, and spending an inordinate amount of money on law school, so I’m a bit behind. These guidelines give me a specific goal to shoot for.

    There’s a reason why Vanguard’s statistics doesn’t line up with how most Americans save. I think a few other commenters mentioned this, but I would be skeptical of the median number Vanguard’s pushing. Not that it’s technically wrong, but that it’s misleading. Participation in the stock market tends to skew towards high income, high net worth individuals, means that your average American (as distinct from the average value in 401ks) probably has very little saved for retirement. The market’s 30% growth in 2013 makes Vanguard’s “record high” number misleading.

    Imagine a situation where you have 10 Americans. It is Jan. 1, 2013. 8 have nothing in their 401k, and 2 have 400k in their 401k, fully invested in index funds. By Dec. 31, 2013, the 2 savers’ accounts have grown to roughly 500k (up 25%), while the other 8 have nothing because they contributed zero. Vanguard may correctly report this as “an average of 100k in 401k accounts” but that says nothing of the financial health of the 10 Americans.

    • says

      Hi Lexington,

      Two answers to your comment

      1) Use the Years Worked column as a barometer instead of the Age column since you started late.
      2) You make a good point, but I can also easily argue the other way and state the $101,630 is understated.

      The bottom line is, there are people out there saving and investing. One should either decide to do the same for a potentially better retirement, or not. Free will!

      Sam

  19. says

    I’m painfully behind in my pre-tax retirement savings, as I only maxed a 401k for the first time last year. Oh well, sunk costs are irrelevant, even if those opportunity costs will be with me forever.

    The best thing I can do now is sock away as much as I can, get a bit uncomfortable like you suggested, and try to make up some ground on that hypothetical version of me who was saving all through his twenties and early thirties. I hate that guy.

  20. Kris says

    My husband and I each have a pension and together they are quite substantial. We do not include the pensions in our net worth, however, if we did, I believe we would need over 3mil in our accounts to receive the income we do. We are relatively young retirees from our first careers. I am still retired–for how much longer, I’m not sure–and he’s working an even better job than he had before. Hallelujah! One retiree in the house is just fine in my book! Our life has changed in so many unexpected ways, which has caused us to change our investment strategies. This past year because of the new job and relocation, we switched to investing in real estate and focused less on our 401k’s. (And I have to be honest, we’ve also switched to having more fun and spending a lot of money. The Bay Area will do that to you. It’s expensive here!) I think one needs to be flexible in their Financial Independence strategies because life as we all know it can change at the drop of the hat, just as ours has. In my opinion, I don’t think we should get so caught up on these numbers that we beat ourselves up over where we rank. Let them inspire you–they certainly do me! Thanks as always, Sam–another great article!

    • says

      A double pension family is like winning the jackpot! Congrats! What did you guys do for a living and for how long? Where you guys going?

      The great thing about the Bay Area is that you can move practically anywhere else and save money in the process.

  21. says

    Sorry, but I’m just not bullish on 401(k)s or retirement accounts, in general.

    A lot of folks in your highlighted age bracket share the same sentiments.

    I mean, 60 years old is 27 years away for me. I’d do better by dropping $17,500 in one real estate property per year.

    Hell, that can buy the entire city of Detroit in 5 years. haha.

    Why should someone who is destined for FI by age 40 rely on a 401(k) that they can’t touch until age 60?

    Either way, I guess there’s more than one way to skin a cat.

    • says

      The ideal is to max out your 401(k) AND save further after tax money for liquidity purposes.

      The rule 72(t) helps early retires extra money from their IRA as well.

      If all one can do is contribute $17,500, then I would split the money into post and pre tax savings for sure b/c one’s federal income tax rate probably isn’t that high.

      • says

        Yeah, I get it. But rule 72(t) is a sucker’s bet for the young and motivated.

        If I had the time, or made the time rather, I’d write the blog post about it. I’d even use your high-end number of $521,000 at 40 years old.

        In short, let’s say one did save $315,000 after working 18 years straight. Using your number, it would mean that $206,000 grew tax-free or was part of the “free- matching”, which is awesome.

        But, if the motivated, young FI decides to quit working and theoretically withdraw the entire nest egg in order to retire in the Dominican Republic, he or she will get taxed on the $206,000 of earnings and be subject to an additional 10% tax assuming rule 72(t) doesn’t apply–$50k gone.

        If it does apply, one’s money will be locked up for an additional five years if I read the “exceptions” correctly. Not only that, he or she would be lucky to get an annual payout of $10,000 over those five years. The substantially equal periodic payment rule is calculated based on a life expectancy or mortality table. Imagine substantially equal periodic payments based on 44 more years of life.

        To be clear, I’m not arguing against the 401(k) per se’. It’s great for the person who values generational wealth distribution, and $50k in taxes is a relatively small amount when he or she has $515,000 saved.

        But for the young and motivated, $17,500 annually could likely go much further and return way better dividends in the future if it was used to “invest” in one’s self, if he or she is motivated enough.

        How many people would walk away from crappy jobs if they weren’t holding on to the “benefits” of their non-vested 401(k) balances or “free” money? I’m guessing a lot. In other words, the “benefits” of tax-free growth isn’t all that we make it out to be.

        Again, 401(k)s are not for everyone. But, everyone should have an actionable plan to retire.

        Source: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments

        • says

          Interesting pontification you make on folks holding onto crappy jobs for the benefits. I do believe health care and the need for salary is indeed why perhaps 50% of people work at jobs they don’t like. But after several years, your 401(k) balances get vested and all the money is yours if you decide to leave. Sure, you won’t get the company match anymore, but hopefully your new company will match.

          The other thing I like about pre-tax savings is that it PROTECTS ONE FROM THEMSELVES. I don’t know how many times I’ve seen people come into money and just spend it all away. Or, folks who look back 10 after 10 years of making a decent income with nothing to show for. For the very disciplined, sure go ahead and invest all the money in yourself and other non pre-tax accounts. But for most, I think it is VITAL to save in accounts that can’t be touched.

          You can’t trust people to do the right thing with money, especially as it grows in size.

  22. says

    Ah, I do miss having a 401K. My current job offers a Simple IRA plan and to be honest, it’s terrible. The fees are awful and the funds available are mediocre. Unfortunately, I also make too much to contribute to an IRA or Roth IRA anymore. Such first world problems over here :)

  23. says

    I’m currently maxing out my 401K. Started 6 months ago. Yay! I wish I would have started earlier. But it’s ok, we are still young. We will max out our ROTH IRAs for 2013 & 2014, and max out my 401K. That’s about $33,000 invested in retirement for 2014.

  24. says

    I love these charts. They’re a great kick in the butt and are very realistic. I’m slowly ramping up my 401k contribution every year, and will do a huge ramp up (probably max out) in the next 2-3 years when my higher interest student loans will get paid off and cash flow greatly increases.

  25. Ravi says

    With an effective tax rate of just over 30% (Fed, state, local, SS, Med, etc) ,I wish I could save more in my 401K. Right now, my focus is getting my full employer match at 8%, and taking the excess cash to help build up some more liquidity. I’d like to have that in case the market dips (I’m betting this will happen over the next 3 years considering we have had gains from 2009-2013), so I can take advantage of buying opportunities in securities and real assets.

    On a side note, any idea why 401k limit is $17.5K while IRA limits are only $5.5K? It seems like anyone without an employer 401k is getting screwed! Why not just make the total tax-deferred limit, regardless of 401k, IRA, or whatever else, a flat limit? Seems fishy to me..

    • says

      The limits seem kinda of arbitrary and ridiculous don’t they? I’m a big proponent of raising the limits, but if the government does, then they lose a lot of tax revenue.

      Will you really buy on dips? For example, did you buy last week when the market corrected 5% in January?

  26. Tiffany says

    I’m 36 and at the lower end of threshold for my age. We have one income for our family of 4 and manage to put about 15% into our 401k each year. We have decided not to increase that and to put our extra savings into purchasing real estate. We have one investment property now and hope to purchase 3-4 more over the next 10-15 years. The stretch goal is have our primary residence and all investment properties paid off in 15-18 years about the time our kids are both in college.

  27. Eric Shun says

    On my 50th birthday, last month, I walked into the HR office at my employer and increased my 403b contribution to 25%. A 403b is like a 401K but for employees of non-profits and government agencies; the employer (usually) does not provide any contribution toward a 403b.

  28. Jalex says

    The numbers don’t add up. I am 45 and have been maxing out 401k for 20 years. But my balance is on the low end. Most contributions have been to equities, but a solid amount in bonds for the past 10 years during the bond boom. Are you calculting in assumed or average employer matching contributions that might not be the case for all 401k participants? The table seems to be based on unrealistic total return assumptions instead of actual asset class returns over the past 20 years.

    • says

      But you’re in the range right? Low end doesn’t mean bad. Low end is excellent, just not high range excellent.

      Also, I’m trying to be forward looking to help younger folks shoot for targets. There isn’t as much we can do to help folks in their 40s and 50s unfortunately due to the contribution limits.

      Contribution limits were much lower 20 years ago than today. This is one of the big missing pieces.

  29. says

    I did not take your poll because my wife and I have been saving 50% of our income for the past 15 years. I had also been maxing out my retirement accounts for many years before we were married. We have about equal amounts in taxable and tax sheltered accounts. We are not rich, but we are off the high side of your savings chart. We expect to have enough to comfortably retire in 9 years.

  30. Matthew says

    Winston,
    The public sector employee salaries vary widely by where you live. In NY Long Island teachers and police officers all earn over $100,000.00 when they reach top pay.

      • Winston says

        Not great, though. Compare that salary to your typical CEO of a similarly-sized organization, and I think you’d find it severely lacking. Of course, we all know that CEO salaries are out of control, so the police chief salary is probably a decent goal to shoot for.

  31. supernova says

    Boy, I did a sample savings list based on your recommendation and didn’t leave a lot to live on.

    Say a $120K annual pay person:

    17.5K 401k
    24.0K post tax savings
    18.0K Fed tax
    8.0K SS/Medicare tax
    18.0K mortgage
    7.0K extra principle (I realize money is cheap right now but…)
    3.5K property tax
    ______
    24K left for expenses

    That’s like Top Ramon territory. Can you say a bit more about the post tax savings rate? I realize “you can’t save too much” but that is putting the screws down pretty tight.

    Some of the above is real life and some is an estimate for my own situation (mortgage, taxes, 401K). I’m in the $650K area for 401K savings so NOT killing it there. I’m also eligible for a $34K a year pension at 55 (I’m 53). Thanks.

    • Winston says

      Coincidentally, $24k/year about how much the Mr. Money Mustache family lives on with a paid-off mortgage. Go check out mrmoneymustache.com. I have no affiliation with the site other than being a reader of his blog.

      • says

        If I could earn what MMM makes on his site, I’d be pumped! He’s got the right formula about talking about frugality and living on less to appeal to everybody. As a result, he’s making tons of money. Ever ask him what he does with his extra income or how much he makes? You’ll be surprised. I’ve got it backwards about talking about how to make more money, which is much harder, but more fun imo.

      • supernova says

        I’m not saying someone can’t live off $24K a year. For me and others I hang out with who have similar interests (travel, hobbies, entertainment) they are spending twice that. Several of my friends have retired in the last two years and they are spending $45-$50K. Most have no mortgage.

        Different strokes for sure and good for MMM for doing it on $24K. I’m guessing no cable TV, one car (maybe less), no travel outside of U.S., don’t go out to eat type of thing. I’ll check out the site. Maybe they cut their dryer sheets in half (just kidding).

  32. Mark says

    Hi Sam,

    I continue to enjoy your amazing site…I discovered it about a year ago. Thank you so much for the clear, concise, challenging advice. You don’t let us off the hook and I think we (the lot of us, at all income and education levels) need a wake up call.

    The 401K suggested savings chart has interested me for some time because of the assumption that people simply begin to work after college or high school and that is the departure point. But there are those of us who take an alternative route to full employment.

    I am 44 but with only 10 solid years of full time white collar employment. I am at 193K in the 401K and $1200 in a pretty newly established Roth IRA (1% contribution). So if I look at the chart by age….I am in trouble. If I look at the chart in years worked, I am doing ok.

    I went with a 15% contribution to my 401K for around 8 years solid…that is how I was able to catch up. I am now at 12% but I have occasionally gone lower in order to build cash reserves. The Roth will serve as college and other support funding for my two step-children aged 3 and 14 (I seem to do everything about 10-15 years after my peers, just got married back in August).

    I think the important thing for me has always been, living within my means, not getting caught up in buying the next big thing, and just looking down the road and preparing. A huge step forward for me was saving my extra income and paying off 26K in student loan debt during those first 8 years….I used all the cash I had amassed and sent it all in. I was back to zero and that was scary but I did it.

    We can do this!

      • Mark says

        To answer your question about my path in life up to 34:

        –Graduate HS in 1987
        –Do almost nothing productive until 21…except that I learn that there are quick roads to nowhere (so maybe I did have something productive come of it).
        –Attend University until I am 25
        –Volunteer in Peace Corps overseas for two years (really life changing)
        –Come back to the states in 1997, work in State government then for a University system…realize that is not enough so time for Graduate school
        –Three years of Graduate school which I absolutely loved and where I learned to truly apply myself including searching for every last grant/assistantship there was
        –Began a public service career in 2003 and have been there ever since, living very well within my means: Paid off student loans, drove a 1991 Civic until just last year, only bought my first flat screen TV last year, I cook at home most often and reserve going out as a special treat

        There’s my story!

  33. Brian says

    To those who are just getting started saving for retirement, I say don’t give up! I started saving 10% when first employed at age 24 and I’m now 55 with over $600,000 in my 401k. Keep contributing and it can happen.

  34. says

    In Germany, we don´t have a 401(K) Account.
    There is an allowance from 801 EUR per person.
    If you have more the 801 EUR dividends, you have pay taxes for this amount.
    Ca. 30% or if your own tax rate is lower (because you earn not much money), the own tax rate instead of the 30%.

    I think the US-taxes are better for investors than in Germany! :-(

    Best regards
    D-S

    • says

      I hear the pension system is quite common in Germany though no? I met a German fella who works at Deutsche Bank and he plans to work until 55 to collect the lifetime pension which he says is “very healthy.”

  35. Spencer in Seattle says

    Hi FS,

    Thanks for the great post. I’m almost 24 and my wife and I have a net income of around 120k/year. We have ~$25k in our 401ks and ~$30k in our Roth IRAs with Vangaurd. We max out our IRA and almost max the 401ks. Off to a good start, but have a lot of work to do.

    Quick question: You mentioned that you you would max out 401k before Roth IRA, correct? Our expense ratios are crazy high with our 401ks, and Vanguard is so cheap. Do you take that into account? I’d love your thoughts on this.

    Thank you! -Spencer in Seattle

  36. says

    I just glanced at my 401k earlier this evening, and found that my increases YOY in the funds that are available, were simply great! Almost everything was 24%-25%. Heck, I even switched my “core account” to be the high-interest bearing account which had an increase of 9.6% last year! Yipee!
    Hopefully I can continue doubling the growth in the account for another 2-3 years albeit painful as it is Sam … thanks for that! :-)

  37. JJK says

    Sam – couple questions for you:

    1) How do you view company matches? I contribute ~$12.5K per year to my 401k (the matching limit for my plan / eligible comp), but including company match and small annual pension, $30K is contributed to my account every year. I consider this as having “saved” $30K per year in my 401k.

    2) How do you view restricted stock? Do you consider that pre or post-tax savings (vests over three years)? And do you view that as savings when it’s granted or when it vests (and you get killed by taxes)?

    My overriding question is – how much would you say I save every year? My breakdown last 12 months:
    – $12.5k personal 401k contribution
    – $17.5k total company 401k match
    – $30k granted RSUs
    – $8k vested RSUs from previous grants (after tax – $15k vested as reportable income)
    – $40k after tax savings

    30 years old. $310 after tax savings. $140k in 401k. $65k unvested RSUs. $10k checking.

    Thanks as always for you work.

    • says

      Hi Jeff,

      1) Yes, I consider you have saved $30K.

      2) I would take all your pre-tax contribution and multiply it by 0.7 to get a post tax amount + your after tax savings amount. We all eventually have to pay taxes.

      Welcome to my site and good work saving so much! You won’t regret it.

      • JJK says

        Thanks for the response Sam. Your comment makes a lot of sense. I always thought of my true net worth that way (applying discount to pre-tax), but for some reason did not extend to savings.

        I understand different plans may make the alternative impossible, but all your savings articles (that I’ve read so far) assumes a max $17,500 401k contribution. Most people should really be saving more than that including employer contributions (and would debunk some commenters questioning your historical 401k contributions by referencing personal contribution limits).

        Other question — I’ve been hesitant to buy an apartment in NYC. While I’m obviously not a big spender in general, I can’t fathom buying a run-down place; $800k would be the least I would spend (and that’s really pretty close to run-down here for a 2br). I know you place a high value on real estate, but at any point does it make sense for someone in my situation to continue renting? If I had a family I would surely buy, but not knowing what the future holds adds an additional wrinkle.

        Thanks again

      • JJK says

        Thanks Sam. Long time reader, but seldom commenter.

        Just lost a long winded response, so I’ll keep this succinct. I know you place a lot of value on real estate, but does it ever make sense for someone in my shoes to continue renting? I’m single and live in NYC. I’ve been looking at places for a while, but, although I’m not a big spender, can’t envision myself buying something less than $800k or $900k (and that’s on the low end of RE market here). That seems like a HUGE financial decision for someone unaware of what his personal family life will be in the near future. Thoughts?

        Thanks again

        • says

          One of my biggest financial regrets was not buying a 2/2 for $760,000 on 22nd between Madison and Park. Probably worth $1.6 for this double balcony, 1,200 sqft place.

          When you can buy, id buy. But buy what you’d be happy living in for 5+ years.

  38. David says

    I just wish I would have known all this info 25 years ago . I am 56 in the past 2 years started to max everything out in my 401 and try to play catch up. It’s depressing at times knowing would I could have did , and didn’t. One thing I know for sure none if this is for wealthy only anyone and put something away . Right know I’m up to 15 percent with a 4 percent company match . Most of my money is going toward stocks . Right now I have 40,000 in there and just started a few years ago . Any other input would be accepted over here ty

Leave a Reply

Your email address will not be published. Required fields are marked *