Congratulations for reaching 60 or almost 60! At 59.5, you can withdraw from your 401k penalty free if you wish. And if you aren't 60 yet, then hang in there. This post will answer your question: How much should I have in my 401k at age 60. The goal is for you to live a good retirement life and not have to worry about money.
The above average 60 year old should have at least $800,000 in their 401k if they've been diligently saving and investing for decades. However, the average 60 year old has closer to $170,000 in his or her 401k.
The big difference in 401k amounts by age 60 show how certain groups of people have pulled away from the average person who who hasn't been focused on their finances. Small saving rate differences or compounding differences over a long period of time create massive wealth differences.
I've been writing about helping people achieve financial freedom sooner, rather than later since 2009, for free. During this time, the people who were maxing out their 401k and reading everything there was to know about personal finance got much richer.
401k As A Retirement Vehicle By Age 60
The 401k is one of the most woefully light retirement instruments ever invented. 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 February 2022 is around $125,000 according to Fidelity's 12 million accounts, thanks to an incredible rise in the S&P 500 since 2009. We're at new record highs and the S&P 500 is now up close to 200% since the depths of the financial crisis.
Even so, $125,000 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!
401k Recommendation Amount By Age 60
The assumptions for the below chart are as follows:
- Low End column accounts for lower maximum 401k contribution amounts available to savers current above age 45
- Mid End column accounts for medium maximum contribution amounts available for savers below 45
- 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.
- Not assuming any after-tax income contributions, although building an after-tax (taxable) investment portfolio is one of the keys to early retirement. You need such a portfolio to produce useable passive income.
- The internal rate of return assumptions are between 0% – 10%. 0% to account for no growth over several years due to the occasional bear market.
- Company match assumption is between 0% – 3%. The average company match, if there is one, is 3% of contributions.
- The three columns should encapsulate 80%+ of all 401(k) contributors who aggressively contribute tot heir 401k 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 60 year old should have between $800,000 – $5,000,000 saved up in their 401k, depending on company match and investment performance. Just one or two percentage points in performance difference can really add up to a lot over a 30+ year savings period.
If you've come up short for whatever reason, at least take comfort knowing there's Social Security at age 62, and at age 65 if you want to receive the full benefit. You're lucky in a way because most Americans ages 40 and under will unlikely receive their full Social Security benefits because the program is underfunded by roughly 25%.
Live Life To The Fullest By 60 And Beyond
Make sure you have a proper asset allocation of stocks and bonds that is more conservative. Too many people were too aggressive investing in stocks right before the financial crisis hit in 2009. As a result, not only did many lose 50% in their investments, they also had to work for years to come.
Your number one goal as a ~60 year old is capital preservation. Hopefully you've accumulated enough, or have a pension or Social Security to help you through if your 401k amount is light. If you haven't, know that the fear of running out of money in retirement is overblown. You should be able to live within your means and not need as much money due to the massive amount of extra freedom you have.
I retired at the age of 35 to work on my hobbies, and I don't regret leaving Corporate America one bit. If you're afraid of pulling the rip chord, find some inspiration in these findings from a palliative nurse named Bronnie Ware who took care of her patients during their last days.
1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.
“This was the most common regret of all. When people realise that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made. Health brings a freedom very few realise, until they no longer have it.”
2. I wish I hadn’t worked so hard.
“This came from every male patient that I nursed. They missed their children’s youth and their partner’s companionship. Women also spoke of this regret, but as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence.”
3. I wish I’d had the courage to express my feelings.
“Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a result.”
4. I wish I had stayed in touch with my friends.
“Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying.”
5. I wish that I had let myself be happier.
“This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called ‘comfort’ of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content, when deep within, they longed to laugh properly and have silliness in their life again.”
Nowhere in these five regrets did people talk about making more money! Meanwhile, regret number two talks specifically about wishing they didn’t work too hard.
The global pandemic has shown us that tomorrow is not guaranteed. Even if you don't have my recommended 401k amount by age 60, you should focus on living your life to the fullest today.
Under a Joe Biden Presidency, at the margin, there will be more social safety nets. There will also be higher income and capital gains taxes.Therefore, there's no longer a need to grind as hard. Enjoy your one and only life every day!
Diversify Your Investments Into Real Estate
Stocks are volatile compared to real estate. Therefore, if you want to dampen volatility and build wealth at the same time, invest in real estate. Real estate is my favorite asset class to build wealth.
The combination of rising rents and rising capital values is a very powerful wealth-builder. By age 60, I highly recommend having a healthy real estate portfolio to generate passive income.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common.
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 easiest way to gain real estate exposure.
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.
Wealth Management Recommendation
I highly recommend signing up for Personal Capital, the web's #1 free wealth management tool to get a better handle on your finances. If you want to achieve an above average net worth by 60, you need to diligently track and manage your finances.
In addition to better money oversight, run your investments through their award-winning Investment Checkup tool . You will 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. It pulls your real data to give you as pure an estimation of your financial future as possible using a Monte Carlo simulation. Definitely run your numbers to see how you're doing.
I've been using Personal Capital since 2012. Partially as a result, have seen my net worth skyrocket during this time thanks to better money management.
How Much Should I Have In My 401k At Age 60 is a Financial Samurai original. For more nuanced personal finance content, sign up for the free Financial Samurai newsletter. I've been helping people achieve financial freedom since 2009.