The 401k is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute is $19,500 for 2020, up from $19,000 in 2019.
The worst is the IRA which limits you to contributing only $6,000 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 $122,000 a year as a single or $193,000 as a married couple for the privilege of contributing the maximum $6,000 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 November 2019 is around $106,000 according to Fidelity’s 12 million accounts, thanks to consistently strong returns in the S&P 500 since 2009.
Unfortunately, $106,000 is an incredibly low amount given the median age of an American is 36.5. Further, the median 401k amount is closer to only $30,000.
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!