The above average person at age 30 should have between $100,000 – $350,000 saved in their 401k if they've been diligently saving since college or after high school.
The 401k is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute for 2020 rises to $19,0=500 and goes up by about $500 every two years to keep up with inflation.
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 August 2021 is around $120,000 according to Fidelity's 12 million accounts, thanks to an incredible rise in the S&P 500 since 2009. Despite all the turmoil in 2020 with the coronavirus pandemic, the NASDAQ and the S&P 500 reached new highs in 2021.
Even so, $120,000 is an incredibly low amount given the median age of an American is 36.5. Further, the median 401k amount is closer to only $28,000.
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!
How Much You Should Have Saved In Your 401k By Age 30
The assumptions for the below chart are as follows:
* The Low End column accounts for lower maximum contribution amounts available to savers above 45.
* The Mid End column accounts for lower maximum contribution amounts available to savers below 45.
* The High End column accounts for savers who are under the age of 25. After the first year, one maximizes their contribution every year to their 401k plan without failure.
* Average starting working age is 22. But you can follow the number of years working as a different guideline if you graduate later or earlier.
* $18,000 is used as the conservative base case maximum contribution amount for one's entire working life. Hopefully the government will increase the max contribution amount over time.
* No after tax income contribution, although more power to you if you have the disposable income to do so.
* The rate of return assumptions are between 0% – 10%.
* Company match assumption is between 0% – 3%.
* The Low, Mid, and High columns should successfully encapsulate about 80% of all 401K contributors who max out their contributions each year. There will be those with less, and those which much, MUCH greater balances thanks to higher returns.
* You are logical and not a knucklehead. Just by searching this topic, you are taking ownership of your retirement and are thinking ahead with an action plan.
Financial Samurai 401k Savings Guideline
From the results, the average 30 year old should have between $100,000 – $350,000 saved up in their 401k, depending on company match and investment performance. If you're looking for a realistic goal, then focus on the Middle column all down the chart.
We know that due to inflation, a dollar today will not go as far as a dollar 30+ years from now. Private school tuition will probably cost over $100,000 a year in 20 years versus $25,000 for public university tuition and $40,000 for private university tuition on average today. so who knows what medical, food, shelter and energy costs will cost then. One thing is for sure, prices will be much higher.
Check out this latest inflation chart which should encourage you to save more in your 401k by 30.
Save In Your 401k Early And Often
Contribute the maximum pre-tax income you can to your 401k for as long as you work. This is the absolute MINIMUM you can do to help ensure a comfortable retirement. After you have contributed a maximum to your 401k every year, try and contribute at least 20% of your after-tax income after 401k contribution to your savings or retirement portfolio accounts.
This way, you will have potentially DOUBLE the amount in total retirement saving if your household income is $100,000 or more. If your household income is closer to $50,000, you should still see a nice 30% boost to your retirement savings if you consistently save 20% of your after tax income.
Challenge yourself to raise your after-tax and 401k contribution savings percent to possibly 50%. It won't be easy, but if you practice raising your savings rate by 1% a month until it hurts, you'll find it easier than you think.
Once you maximize your 401k and save over 50% of your after-tax income for at least 10 years in a row, you will be financially free to do whatever you want.
Take it from me, someone who left the work force at the age of 34 after saving 50%+ for 13 years. There's not a day that goes by where I'm not thankful for working extra hard and making certain financial sacrifices to be free.
Diversify Your Investments Into Through Real Estate
Contributing the maximum amount in your 401k is great. However, it's also good to diversify and generate passive income.
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. By the time I was 30, I had bought two properties in San Francisco and one property in Lake Tahoe. These properties now generate a significant amount of mostly passive income.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go.Â
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.Â
Recommended Tool To Keep Track Of Your Wealth
Sign up for Personal Capital, the web's #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software.
In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you're doing.Â
I've been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
