The 401k is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute for 2018 rises to $18,500 pre-tax from $18,000 in 2017.
The worst is the IRA which limits you to contributing only $5,500 in pre-tax dollars only for individuals making under $72,000 a year and married couples making under $119,000 a year.
Meanwhile, you have to make less than $133,000 a year as a single or $196,000 as a married couple in 2018 for the privilege of contributing $5,500 in after- tax dollars to a Roth IRA, which I do not recommend before maxing out your 401k.
Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401k or IRA any time! At least with the 401k, anybody can contribute.
The average 401k balance as of January 2018 is around $110,000 according to Fidelity’s 12 million accounts, thanks to an incredible 32% total return in the S&P 500 in 2013, 13.7% increase in 2014, 1.4% increase in 2015, 7.8% increase in 2016, and 19.6% increase in 2017. We’re at new record highs and the S&P 500 is now up more than 200% since the depths of the financial crisis in February 2009.
Even so, $110,000 is an incredibly low amount given the median age of an American is 36.5. Further, the median 401k amount is closer to only $25,000. As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401k’s at age 25, 30, 35, 40, 45, 50, 55, 60, and 65.
We stop at 65 because you are allowed to start withdrawing penalty free from your 401k at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!