Financial Samurai

Slicing Through Money's Mysteries

How Much Should People Have Saved In Their 401Ks At Different Ages

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Saving Jar Colleen Kong

Art by Colleen Kong at KongSavage.com

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!

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Explaining Why The Median 401(k) Retirement Balance By Age Is Dangerously Low

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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, other passive 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 reality is that the median account balance in the U.S. is only around $72,000 for 55-64 year olds  according to Vanguard, one of the largest 401k managers. The average 401k balance for 55-64 year olds is roughly $178,000. But the average is screwed up to due the super wealthy. Even with $178,000 in your 401k at retirement age, you aren’t going to be living it up for the next 20 – 30 years without alternative sources of income.

Average and Median 401k Balance By Age Group - Vanguard

Source: Vanguard balances

According to data from Fidelity, here’s the average 401k breakdown by age in 2017:

Ages 20 – 29: $9,900

Ages 30 – 39: $38,400

Ages 40 – 49: $91,000

Ages 50 – 59: $152,700

Ages 60 – 69: $167,700

Ages 70 – 79: $160,200

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 $150,000 – $500,000 according to my 401(k) retirement savings guide instead of these pitifully low levels.

In this article, I’d like to share some stories on what happened to all the missing savings because we all know we should be maxing out our 401k every year for as long as we work. 

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The Average Net Worth For The Above Average Married Couple

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Average net worth for the above average married coupleOne of the most popular posts on Financial Samurai is The Average Net Worth For The Above Average Person. The “above average person” is loosely defined as someone who graduated from college (35% of the American population), works hard, plays well with others, takes full advantage of their pre-tax retirement plans, saves additional disposable income, stays on top of their finances by utilizing free financial tools, expects nothing from their parents or the government and is not delusional. If you were a “C student” and expect to live an “A lifestyle,” you’re definitely not the above average person!

Depending on the source, the average net worth in America is somewhere between $150,000 – $200,000. But the median net worth in America is closer to $80,000. Take a moment to study the above average person’s net worth chart again. Somewhere between the ages of 45-50, the above average person’s net worth reaches over one million dollars. We can all agree that thanks to inflation, easy monetary policy, a roaring bull market and a recovery in real estate, becoming a millionaire by the time we retire is fast becoming the rule, rather than the exception.

The Average Net Worth For The Above Average Person by Financial Samurai

It’s important to note the figures in my chart are for individuals and not for couples. For those of you who combined your household net worth to see where you stand, so sorry. That’s cheating. At the same time, not everybody can find someone they love, hence why I initially created a per person chart. It would be presumptuous to assume we can all live in marital bliss. Further, not everybody is even allowed to get married thanks to the government telling us who we can and cannot be with. For simplicity’s sake, I will refer to “married couples” as anybody who is in a long term relationship.

This article comes up with reasonable “above average couple net worth” charts based on what I think, what the government thinks, what you think, and the realities of life. One can also define “above average” as one standard deviation beyond the midpoint of the normal distribution curve (top 16%). Not every couple can be above average. But every couple can certainly try.

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Achieving Financial Freedom One Income Slice At A Time

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Experiencing Financial Freedom Dream House In Kahala, Oahu, Hawaii

Experiencing Financial Freedom

If you ever want to be absolutely free, you need to develop multiple income streams so that when the inevitable change happens, you’ll be covered.  I first recommend you start with the end in mind. What makes you happy?  From this question, now you can derive how much money you honestly think will make you happy.

Once you’ve digged deep to answer these two important questions, you can then start building your income goals.

What makes me happy?

Family, friends, experiences, travel, freedom to say and do what I want, sports, relationships, the online community, hot tubbing with drinks, food and enough money to not have to worry. Good old nostalgia really makes me happy too.

What makes me unhappy?

Racists, bigots, haters, lying politicians, bad bosses, cronyism, inequality, people who say one thing and do another, thieves, and zealots who impose their will on others.

How much money do I need to achieve what makes me happy?

Anywhere from $3,000 to $15,000 a month after taxes to account for a single life to one that provides for a family of four.

I really don’t need much to be happy if I’m supporting only myself and have no debt.  I was super happy living on nothing while in school, so $3,000 a month after tax would be fine.

$15,000 a month after tax is a large nut that equates to about $235,000 in gross income a year, the income level where I think maximum happiness is attained. With $15,000 a month, I can afford private school tuition for two if necessary, go travel 8 weeks a year, get huge and eat whatever I want, have a paid off car, live in a comfortable home practically anywhere in the world, and continuously save for a rainy day. Furthermore, $15,000 a month after tax can be used to help my parents in case they need financial help for whatever reason.

Think about an after tax monthly income number you’d like to achieve and let me know. For now, it’s time to open up the kimono and see what can be produced after over a decade of saving and investing. This is a long post, so make sure you go to the bathroom first!

CONSTRUCTING THE FINANCIAL FREEDOM PORTFOLIO

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The Rise Of Stealth Wealth: Ways To Stay Invisible From Society If You Have Money

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Invisible Man in Boller HatBecoming wealthy has never been easier in America thanks to quantitative easing, improved financial education, an improving economy, a widening safety net, and a bull market in stocks and real estate. Surviving as a wealthy person on the other hand, has never been tougher. The government goes after you if you make much more than $200,000 a year (medicare tax, AMT, deduction phaseout, credit eliminations, education tax, net investment income tax). If the government doesn’t get you, regular citizens will. Who did you cheat or rob to get to where you are? This is a real problem for those who want to make it big in the land of dreams and hand guns.

Freedom is one of America’s greatest attributes. Yet, if you go too far on the income curve you’ll start feeling like a prisoner to society. Despite the rich giving more to charity in one year than many others will give in their lifetimes, people will protest their wealth and hate them forever. Class warfare is no fun, even if you do have the financial means to own a bazooka.

Most readers here are ambitious folks who want to improve their financial health. Thanks to disciplined savings and investing habits, in another 10 years, I’m sure everybody is going to be that much wealthier. But once you get to where you are going, you’ll wonder what’s next. Never lose site of the fact that it’s really the journey to financial independence that’s most rewarding.

When society turns their back on you for being successful, just recollect on all your struggles and take a deep breath. Be proud of your accomplishments because you know you’re not just doing it for yourself, but for your family as well. You don’t have to be ashamed for not being the dumb ass in high school who thought it was cool to skip class every week to smoke weed. You shouldn’t feel bad that you worked summer internships during college while your buddies went off to play. And you should certainly not feel embarrassed by your frugal habits and smart investments once you found a job.

Unfortunately, society has a fantastic way of discrediting your achievements. “Nobody is self made,” and “You didn’t build that,” are my two favorite retorts. Just try taking yourself completely out of the equation and see where that logic goes when there’s nobody to think, dream, and execute. When you are outnumbered, resistance is futile. You must blend in and rage with the rest of them.

With the below suggestions you’ll be able to better walk amongst the shadows without fear of retribution any longer. Your family will be more guarded from bullies lurking to recondition your children every chance they get. Once you finish reading this post, never speak of its matters beyond your immediate family and friends again. We’ve got to protect our own little community on the web.

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