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How Much Should I Have Saved In My 401(k) By Age?

Updated: 04/02/2022 by Financial Samurai 1,055 Comments

Are you looking for a 401(k) savings guide? This post will go through how much I think you should have in your 401(k) by age in order to have a comfortable retirement in your 60s and beyond.

The 401(k) is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute is $20,500 for 2022, up from $19,500 in 2021. A 401k is part of your three-legged retirement stool. The other two legs include your after-tax investment accounts and your side hustles.

Although the 401(k) pales in comparison to a nicely funded pension, even more disappointing than the 401k is the IRA. With the IRA retirement plan, you can only contribute $6,000 in pre-tax dollars. Further, you can only contribute if you make under $76,000 a year as an individual and $125,000 as a married couple. What about the rest of us?

Meanwhile, you have to make less than $140,000 a year as a single person or $208,000 as a married couple for the privilege of contributing the maximum $6,000 in after- tax dollars to a Roth IRA. I do not recommend doing this before maxing out your 401(k).

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 401(k), anybody can contribute.

2022 401(k) contribution limits for employee and employer

Average 401(k) Retirement Balances

Based on Fidelity’s 2020 study, here are the average retirement balances for the IRA, 401(k), and 403(b). Expect the balances to be 5-10% higher for 2022.

  • The average IRA balance was $111,500, a 13% increase from last quarter. It is slightly higher than the average balance of $110,400 in 2019.
  • The average 401(k) balance increased to $104,400 in Q22020, a 14% increase from Q1 but down 2% from a year ago. For 4Q2020, the average 401(k) balance rose to roughly $120,000.
  • Average 403(b) account balance increased to $91,100. This is an increase of 17% from last quarter and up 3% from a year ago.
Average Retirement Balances Q22020 - 401k savings by age

Given the stock market has continued to do very well in 2021, the average 401k savings by age is likely up another 5% – 10% this year.

The Average 401(k) Balance By Age

Let’s focus on the 401(k) and what people should have in their 401(k) by age. The entire goal is to accumulate enough money in your 401(k) and other retirement accounts to eventually live financially free.

The average 401(k) balance at the end of 2020 was roughly $120,000. Therefore, what should the 401(k) savings by age be today? Given the median age in America is about 36 years old, the average 36-year-old should have a 401(k) balance of around $120,000. Unfortunately, $120,000 is still pretty low.

Below is the average 40(1)k savings by age range as of 4Q2020 according to Fidelity. It’s great to see the average 401k savings at retirement age rise to $229,100. However, that’s still not enough to live a comfortable retirement lifestyle.

401k balance by age 4Q2020 - 401k Savings By Age

As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a 401(k) savings by age recommendation table that shows how much each person should have s(a)ved in their 401k at age 25, 30, 35, 40, 45, 50, 55, 60, and 65. The amounts are much greater than the average 401k savings by age in America.

We stop at 65 because you are allowed to start withdrawing penalty free from your 401(k) at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65. By age 65, you will have had 40+ years to save and investment already!

401k Savings By Age: How Much You Should Have

To determine how much you should have saved in your 401k by age, I’ve come with some assumptions that have encapsulated in a chart below.

The assumptions for the below chart are as follows:

  • Low End column accounts for lower maximum contribution amounts available to savers above 45.
  • Mid End column accounts for lower maximum contribution amounts available to 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.
  • 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% – 100% of employee contribution. $61,000 is the total 401k contribution for 2022. Employees can contribute a maximum of $20,500.
  • 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 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 401(k) Savings By Age Guide

Here is my 401(k) savings targets by age.

401k savings by age targets

From the results, we can see that even after 38 years of consistent saving, you’ll only have around $1,000,000 to $5,000,000 in your 401k in a realistic cycle of bull and bear markets. In other words, I believe everybody should become 401(k) millionaires by 60.

If you’re just starting your 401(k) savings journey, you could get lucky and achieve the high end column with consistent 8%+ annual growth and company profit sharing after 38 years. After all, the maximum 401(k) contributions will be much higher over the next 38 years than the previous 38 years.

But it’s most likely that most people reading this article should follow the middle-to-low end columns as a 401(k) savings guide. The median age in America is roughly 36. Meanwhile, the median age of a Financial Samurai reader is closer to 38.

Investing Matters Because Inflation Matters

Let’s say you live for 25 years after retiring at 60. You only get to live on $40,000 – $100,000 a year on the low-to-mid end. Sounds feasible in today’s dollars, but not so much in future dollars due to inflation.

If goodness forbid you live for 35 years after retiring at 60, then you can only live off of $28,571 – $71,000. If we use a 2% inflation rate to calculate what $1,000,000 – $5,000,000 is worth today, its only worth about $5500,000 – $2,355,000.

We know that due to inflation, a dollar today will not go as far as a dollar 30+ years from now. Private university tuition will probably cost over $100,000 a year in 20 years. That is ridiculous since education is now free thanks to the internet.

Then there is the incredible growth of healthcare costs that is the most worrisome for retirees. For example, I’ve been paying $23,000+ a year in healthcare premiums for a platinum plan for my family of three. This is despite us all in good health.

Does that sound affordable for the average American household who makes $68,000 a year? Absolutely not, which is why employees should not underestimate the value of their overall work benefits.

In fact, inflation is the reason why it takes $3 million to be a real millionaire today. Make sure you own assets like stocks, real estate, and more to let inflation work for you!

Inflation chart of select US consumer goods and services, and wages - 401k savings by age

To help grow your net worth, I recommend diligently tracking your net worth with Personal Capital. Technology has come a long way since tracking our money by hand or with an Excel spreadsheet. Remember, what is measured can be optimized.

Depend On Nobody But Yourself

Contribute the maximum pre-tax income you can to your 401(k) for as long as you work. This is the absolute MINIMUM you can do to by on the right 401k savings by age path.

Below is a chart that shows what you could have in your 401(k) if you max it out each year starting in 2022. The right hand column shows what you would have in your 401(k) with 8% compound annual returns.

In other words, everybody who consistently maxes out their 401(k) each year will likely be a 401(k) millionaire by the time they turn 60.

what you could have in your 401(k) if you max it out each year

After you contribute 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. Here is the recommended order to contribute to your retirement accounts.

Treat your 401k just like Social Security and write it off completely from your mind. Do not expect either accounts to be there for you when you retire. It’s just like how you should never expect the government to ever help you when you’re in need.

Just imagine 30 years from now, the government deciding to raise penalty free 401k withdrawal to age 75 from 59.5? Unfortunately, you need the money at age 60. Because you withdraw, the government imposes a 30% penalty on top of the taxes you have to pay. Don’t think it can’t happen. Expect it to happen!

Taxable Investment Portfolio Is Key

The only thing you can count on is after-tax money you’ve invested or saved. This is why after maxing out your 401k, it’s good to open up an after-tax brokerage account. Consistently contribute a percentage of your paycheck each mont into your taxable investment portfolio.  I recommend at least 20%.

Your goal should be to then build as many passive income streams as possible. The more passive income streams and active income streams you have, the more financially free you will be.

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.

A straightforward way to maximum savings is to make your 401(k) maximum contribution automatic. Save every other paycheck for the rest of your working life. 

Max out your 401k and save over 50% of your after-tax income for at least 10 years in a row. If you do, you will be financially free to do whatever you want!

Recommendation To Growing A Large 401(k)

Now that you know what the appropriate 401k savings by age is, it’s time to manage your finances like a hawk. To do so, sign up for Personal Capital, the web’s #1 free wealth management tool. Personal Capital will enable you to get a better handle on your finances.

In addition to better money oversight, run your investments through their award-winning Investment Checkup tool. I will show you 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 Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. 

To track my 401k savings by age guide you must max out your 401k each year. With investments returns coupled with company matching, you’ll be amazed how much you will accumulate over the years.

I’ve been using Personal Capital since 2012. In this time, I have seen my net worth skyrocket thanks to better money management.

Retirement Planning Calculator to help with your 401k savings by age

Build Wealth Through Real Estate

In addition to investing in stocks and bonds through your 401k, I recommend diversifying into real estate as well. Real estate is a core asset class that has proven to build long-term wealth for Americans. It’s important to own a tangible asset that provides utility and a steady stream of income.

Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Inflation is picking up steam, which further boosts the value of real estate.

With real estate, you can earn a steady stream of passive to semi-passive income well before age 59.5, which is when you can withdraw from a 401k penalty-free.

Two Favorite Real Estate Platforms

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds and eREITs. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most investors, investing in a diversified portfolio is the best way to go.

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. They also have higher rental yields, and potentially higher growth due to job growth and demographic trends.

Both platforms are free to sign up and explore. 

I’ve personally invested $810,000 in real estate crowdfunding across 18 projects. My goal is to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.

Follow my 401k savings by age guide. But in the meantime, also build a passive income portfolio so you can live a better life today. Given you cannot withdraw from your 401k without penalty until 59.5, it is your passive investment portfolio that matters even more.

Buy The Best Selling Personal Finance Book

If you want to drastically improve your chances of achieving financial freedom, purchase a hard copy of my new book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. The book is jam packed with unique strategies to help you build your fortune while living your best life.

Buy This, Not That is already a #1 new release and #1 best seller on Amazon. By the time you finish BTNT you will gain at least 100X more value than its cost. After spending 30 years working in finance, writing about finance, and studying finance, I’m certain you will love Buy This, Not That. Thanks for your support!

How Much Should I Have Saved In My 401k By Age is a Financial Samurai original post. Everything is written based off first hand experience because money is too important to be left up to pontification.

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Filed Under: Most Popular, Retirement

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Order a hardcopy of my upcoming book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. Not only will you build more wealth by reading my book, you’ll also make better choices when faced with some of life’s biggest decisions.

Buy This Not That Book Best Seller On Amazon

Current Recommendations:

1) Check out Fundrise, my favorite real estate investing platform. I’ve personally invested $810,000 in private real estate to take advantage of lower valuations and higher cap rates in the Sunbelt. Roughly $150,000 of my annual passive income comes from real estate. And passive income is the key to being free.

2) If you have debt and/or children, life insurance is a must. PolicyGenius is the easiest way to find affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius. I also just got a new affordable 20-year term policy with them.

3) Manage your finances better by using Personal Capital’s free financial tools. I’ve used them since 2012 to track my net worth, analyze my investments, and better plan my retirement. There’s no better free financial app today.

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Comments

  1. Wally says

    June 26, 2022 at 3:02 pm

    Max out your 401k at 20,000 huh? The average annual income for a household in my zip code is 28,333 according to the last census. Be mighty tough to live on 8,333 a year wouldn’t it?

    Reply
    • Financial Samurai says

      June 26, 2022 at 3:59 pm

      Call STEF Lane. If this is the case, try to contribute up to your employer match. This way, if you get a 100% return on your contributions. Three money!

      Reply
  2. Ken says

    June 15, 2022 at 9:05 am

    “With real estate, you can earn a steady stream of passive to semi-passive income well before age 59.5, which is when you can withdraw from a 401k penalty-free.”

    I believe this statement is false but please correct me. I have learned you CAN withdraw penalty free from your 401 K at age 55 PROVIDED you are not employed. This key point is rarely mentioned.

    How the Rule of 55 Works
    The rule of 55 affects how and when you can access your retirement savings. If you are between ages 55 and 59 1/2 and get laid off or fired or quit your job, the IRS rule of 55 lets you pull money out of your 401(k) or 403(b) plan without penalty.1 It applies to workers who leave their jobs anytime during or after the year of their 55th birthday but only applies to that last job you had so if you’ve had a long career at your last job, you certainly can withdraw penalty free.

    Reply
    • Financial Samurai says

      June 16, 2022 at 7:12 am

      You can withdraw from your 401(k) early as well with the rule of 55. But it is also true that you can withdraw at age 59 1/2 from your 401(k) penalty free.

      But relying on our tax-advantaged accounts for retirement should be an afterthought. It should be considered bonus money instead.

      If you have to start withdrawing early from your 401(k), I would suggest you continue working on building your taxable investment accounts.

      Reply
  3. BigLoss. says

    May 10, 2022 at 10:58 am

    Ugh, i was feeling pretty on track for this beginning of the year. Down 20% in my retirement porfolio since Christmas. (I’m pretty tech heavy funds… only my Apple stock has held up ok).

    Went from $320K to $250K in a few months .. painful. Oh well, I’m about 20 years out from being 62… so I got time i guess. Main worry is the stock market crash leading to a housing crash in 6months – a year. That would lead to a major recession.

    Reply
    • Ben says

      May 11, 2022 at 12:06 am

      This is the best thing that could happen to you with 20 years left. This gives you the chance to contribute more at much lower prices. My personal advice is don’t try and time things, or think you can out smart the market. Just keep contributing!

      Reply
  4. Tim Lee says

    March 26, 2022 at 4:37 pm

    Great article! I’ve always maxed out my 401k contributions, but in the last year, I bought 2 rental properties. As I continue to learn more about real estate, what are your thoughts about not contributing to the 401k and instead diverting toward real estate, especially in these times?

    Reply
    • Financial Samurai says

      March 26, 2022 at 5:30 pm

      I think you should max out your 401(k) every year no matter what.

      You can also strategically invest in private real estate funds instead of going all-in on individual rental properties.

      For example, you can invest in Fundrise for as little as $10 and dollar cost average each month.

      I’ve invested $810,000 in private real estate since 2016 to diversify and earn more passive income. I have reached my limit in terms of the number of physical rental properties I want to own.

      Reply
    • Biglosses says

      May 10, 2022 at 11:01 am

      2021 was definitely a year to forgo investing in your 401K .. atleast since hindsight is 20/20. But since we are crashing now and down 20%..i would be plowing extra into your 401K now and forget about the rental properties for awhile. Rents are gonna pullback this year and housing prices are gonna retreat if the stock market keeps falling. Real estate lags the stock market.

      Reply
      • Financial Samurai says

        May 10, 2022 at 11:37 am

        Just keep buying. Over the long run, things generally turn out fine.

        I still think real estate is going to hold on due to tremendous undersupply. But no doubt prices are cooling. Real estate could easily decline by 5-10% over the next 24 months. But if inflation peaks in 2022 and the Fed stops raising rates, real estate will likely continue to outperform.

        Reply
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