The median 401(k) retirement balance is low. With such low median 401(k) retirement balances by generation, it may be harder for a large swatch of Americans to retire comfortably. This post interviews various people with low 401(k) balances who explain why their 401(k) balances are so low.
You likely won't be able to live off your 401(k) alone in retirement. However, 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 in 2024 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.
According to data from Fidelity, here’s the average 401k breakdown by age in 2024:
- 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. For 2025, the employee maximum contribution amount is $23,500.
Diversify Into Real Estate To Build Greater Wealth
In addition to investing in your 401(k) for a wealthier retirement, also invest in real estate. Real estate provides the powerful one-two punch of principal appreciation and rental income growth over time. Fundrise manages around $3 billion in private real estate investments, mainly in the Sunbelt region where valuations are lower and yields tend to be higher. With the Fed embarking on a multi-year interest rate cut cycle, there should be increased demand in real estate in the coming years. I've personally invested over $270,000 in Fundrise funds so far.
Median 401(k) Retirement Balance Calculations
The below chart shows what a typical 22 year-old-college graduate should have accumulated in their 401(k) retirement balance if they followed my advice and started maxing out their 401(k) after two years of working.
The maximum pre-tax contribution amount is $23,500 in 2025, up $500 from 2024's 401(k) contribution limit of $23,000. The limit will likely increase by $500 a year every couple of years to keep up with inflation.
I've divided the chart into three columns to account for older savers, middle age savers, and younger saves due to the different maximum contribution limits. I've also accounted for different return and company matching metrics.
The bottom line: everybody who consistently contributes to their 401k over a 38 year career will likely have at least $1,000,000 in their account. The 401k savings targets by age can also act as a total savings guideline as well if you wish. The median 401(k) retirement balance by age can improve if everybody starts saving more.
Median 401(k) Retirement Balance By Age Discrepancies Explained
I've been consulting with more clients about their personal finances and what I've discovered is that something always seems to come up and knock someone off their retirement savings path.
It's all fine and dandy to assume everyone should logically max out their 401(k) or at least save 20% of their after tax income until retirement, but this is seldom the case.
With consent from my clients, let me share several case studies on retirement balances to illustrate some points. I'll also highlight one reader's e-mail feedback about the topic as well as my own example. Names are changed for privacy reasons.
Case Study One On Why Their 401(k) Is Low – Family To Support
Joe is 42 years old and makes $120,000 a year as an engineer. He's been working for 19 years and has $80,000 in his 401(k) (vs $300,000+ recommended). When I asked him to share his 401(k) situation he shrugged.
He never considered maxing out his 401(k) because he always thought he wouldn't have enough money left to take care for his wife and son. His wife worked for the first eight years and decided to stay at home after giving birth. Going from a two income family to a one income family is difficult if you're not use to saving half.
Joe has about $12,000 in after-tax savings which will cover about four months of living expenses just in case something bad happens. Given the thin buffer, we talked about the importance of getting long term disability.
When I dug deeper, I realized Joe has a penchant for fixing up old cars. All told, he's spent over $60,000 after taxes to beautify his two 1965 Mustangs.
Case Study Two On Why Her 401(k) Is So Low – Expensive Living
Sally is 32 years old, and makes $75,000 + bonus as a medical equipment sales rep. Sally got her Master's degree in healthcare, and graduated with $27,000 in debt at the age of 24. She pays about $500 a month in student loans which she plans to pay off in 10 years tops.
After seven and a half years of working at a reputable firm, Sally's 401(k) retirement balance is $70,000 compared to a recommended $127,000 after eight years of work experience according to my guide.
Sally only contributed 10% of her annual gross salary into her 401(k) because of her school debt, car payments, credit card payments, and $2,600 a month rent here in San Francisco.
Sally's case shows that education is expensive and good paying jobs come with higher cost of living. Sally has about $5,000 in savings in the bank.
Case Study Three On Why Her 401(k) Is Low – High Income Burnout
Susie is 34 years old, single and makes $150,000 + bonus as a VP at an investment bank based in San Francisco. She's been working for 12 consecutive years out of college. In between years 10 and 12, Susie took a 1.5 year hiatus to become a baker during the financial crisis.
She was burned out and wanted to try something new. But, after spending $25,000 for tuition, missing out on 1.5 years worth of income, and getting screamed at while making only $10 an hour, she realized being a baker at a restaurant was not for her. “If I'm going to get yelled at making $10 an hour, I might as well make a lot of money!” Susie joked.
Susie has about $150,000 in her 401(k), 50% higher than the current median according to Transamerica. However, given she didn't earn any money for 1.5 years and paid a lot for tuition.
Susie is also about $50,000 light based on my guide. Susie was only contributing about 10% of her pre-tax income to her 401(k) for her entire career because she didn't want to tie her money up beyond the company match.
Case Study Four Why His 401(k) Is So Low – Highly Educated Couple
An e-mail from a reader responding to the Average Net Worth For The Above Average Person article:
“I noticed that most of your posts are geared towards people who start working at age 22 with minimal debt – as just one example, your “above average” people projections.
But many “above average” people do not start working at age 22 and incur substantial debt before they start working. For example, I am a lawyer that obtained a master's degree and then a law degree before starting my career at age 28. My wife is a doctor, who completed her residency and started practicing at age 28 as well. Both of us started our careers with substantial student loan burdens – over $325,000 between the both of us.
Our late start means we lose a lot of the magic of compounding interest. And our debt burden takes a big chunk of our monthly income. These are significant challenges.“
Case Study Five Why His 401(k) Is So Low – Early Retiree
My 401(k) was about $400,000 when I left work at age 34 in 2012. It grew to about $550,000 in 2020, and now to about $900,000 in 2023.
What I miss about work was my $20,000 – $25,000 a year in profit sharing. That addition was a huge boost to my annual 401(k) that cannot be underestimated.
It was only until 2014 when I realized I could open up a Solo 401(k) with the freelance income I was generating. My Solo 401(k) now has about $240,000.
Although missing out on 401(k) matching is a bummer, I have enjoyed my time as a fake retiree since 2012. Since I left work I've grown Financial Samurai and my online income. As a result, I've been able to grow my SEP IRA, which is worth about $370,000.
I've also written a bestselling severance negotiation book called How To Engineer Your Layoff. I also wrote a WSJ bestselling book called, Buy This, Not That. The income earned from these two creative projects can add to my Solo 401(k).
Case Study Six Why His 401(k) Is So Low- A Nasty Divorce
A reader shares his story,
What is misleading as to why many 401k’s are half or less what they should be is one word…DIVORCE. I am currently 44 yrs old. When I was 37 in 2008, I had $125,000 in my 401k and then….BOOM! Stock market crashed and my 401k was worth $80,000. Yeah not fun. 7 years later my portfolio recovered to $130,000. But then I had to go through a divorce.
Now I’m back to $65,000. Ridiculous. Over 50% of married couples get divorced and many men are paying Child Support and Alimony and aside from losing half our retirement we now have nothing for years to invest…but I digress.”
Case Study Seven Why His 401(k) Is So Low- A Bear Market
After 10+ years of a bull market, the bear market finally came back in 1Q2020. The S&P 500 at one point lost 32% in a matter of weeks. It has since clawed its way back in expectation of a second half recovery. However, the downturn clearly hit a lot of 401(k) portfolios hard.
Then, in early 2022, a correction happened again with the S&P 500 and NASDAQ both declining by 10%. The stock market has had a great run since the pandemic began. However, volatility is back and lower return assumptions are here for stocks and bonds for the next 10 years.
Instead of just investing in stocks, consider bonds and real estate. Real estate tends to significantly outperform during downturns if real estate is not the cause of a downturn.
Take a look at the historical investment returns of Fundrise. Fundrise is my favorite real estate crowdfunding platform, especially during tough stock market years. Fundrise offers vertically integrated private real estate funds to take advantage of the inflation wave. It's free to sign up and explore.
Case Study Eight On Why Their 401(k) Is So Low – Black Swan Events Like A Global Pandemic
Who would have forecasted a global pandemic that caused months of lockdowns in America and around the world? The S&P 500 sold off by 32% from peak to trough in March 2020, and many people panicked and sold some stock. It's understandable since the previous recession saw a 55% drop in the S&P 500.
In addition, who would have thought the S&P 500 would rebound so quickly and surge far beyond its pre-pandemic highs so quickly? You just never know, which is why it's good to stay invested for the long run.
Today, there are more 401(k) millionaires than ever before because the stock market rebounded. But capital preservation is important, as we realized again in the 2022 bear market.
Bear markets and black swan events have a nasty way of crushing our 401(k)s. Therefore, please always pay attention to your risk exposure and asset allocation.
Case Study Nine On Why Their 401(k) Balance Is So Low – Job Hopping
The final reason why the median and average 401(k) balances are so low is due to job hopping. Every time you job hope you have the decision to leave your 401(k) with your old employer or roll it over to an IRA. Most people rollover their 401(k) to an IRA due to lower fees, more options, and a desire to separate from their old employer.
However, every time an employee leaves their 401(k) with their old employer, they essentially divide up the total balance of their overall 401(k) amount.
Other Exogenous Variables Affecting 401(k) Balances
Here are more variables affecting 401(k) balances. We talked about economic conditions and market volatility. But a couple more variables include the inflation rate and legislative changes.
Inflation Rate Impact
Inflation can help boost stock prices, but it can also hurt stock prices. It depends on where we are in the inflationary cycle.
As inflation took off in 2022 and reached a peak of about 9% in mid-2022, stocks began to take a dive. The Fed started aggressively hiking rates causing more panic in the stock market. As a result, the average 401(k) balance fell by over 15% in 2022, largely due to inflation.
However, inflation finally began to roll over in 2023. Stocks began rebounding as investors felt more optimistic that inflation and interest rate hikes would end. With high risk-free rates and a rebound in stocks, 401(k) balances have also rebound.
On a micro level, higher inflation rates reduces purchasing power. With reduced purchasing power, more cash is needed to buy the same goods and services. Therefore, consumers may end up contributing less to their 401(k)s in a high inflation environment, thereby bringing down the average and median 401(k) balances.
Thankfully, the Fed is embarking on a multi-year rate cut cycle starting in September 2024, and risk assets should have a tailwind.
Legislative Changes
Changes in tax laws or retirement savings regulations can affect 401(k) balances.
For instance, changes to 401(k) contribution limits, withdrawal rules, or tax advantages associated with 401(k)s can influence how much individuals can save and, ultimately, the size of their retirement nest egg.
One of the biggest changes to tax-advantaged retirement plans came from the introduction of the SECURE Act and SECURE Act 2.0. These new retirement legislative changes should theoretically help boost the average and median 401(k) balances.
Life Happens To Us All, Which Can Bring Down 401(k) Balances
We all know we should be maxing out your 401(k)s but don't because something always seems to get in the way. Who would have thought a global pandemic would shut down the economy for years? Crazy!
Not only should everybody contribute the maximum they can to their tax-advantaged accounts, people need to focus on building their taxable accounts as well. If you want to retire early, it is your taxable accounts and real estate investments which will provide the passive income necessary to be free.
Life gets in the way of our retirement savings plans all the time. We have tuition to pay, expensive cars to fix, vacations to take, concerts to attend, shoes to buy, Range Rover Superchargers to drive, alimony to pay, sickness to deal with and economic dislocations to experience. No wonder why the median 401(k) retirement balance isn't very high.
Here's another chart comparing the median and average 401(k) balance by age and my 401(k) guidance if we continuously max out your 401(k) each year. The idea of my chart is to help you realize what's possible.
Recommended 401k Balance By Age
Some of us just like to honestly blow lots of money and not give a damn! There's always an excuse for not saving. However, if you don't want to become one of those tragedy stories or a burden to your fellow citizens, then I suggest increasing your 401(k) contributions and after tax savings percentages.
If the amount you are savings doesn't hurt, then you are not saving enough. At the end of our careers, we only have ourselves to blame if we come up short.
Unless you have developed alternative income streams, paid off your house, and have other after tax savings, living off $350,000-$500,000 for the next 20-30 years is just $12,000 – $25,000 a year.
Pay yourself first before anything else and max out your 401K. After you've maxed out your 401(k), figure out where you can save some more in your after-tax investment accounts. The goal is to generate enough passive income to cover your living expenses.
Less than 15% of the working population can rely on a pension. Meanwhile, Social Security is underfunded by 25%, and may be unreliable when you finally retire.
The only thing you can count on for living a comfortable retirement is you!
Build More Wealth With Real Estate
Real estate is my favorite way to build wealth. Even with a low 401k retirement balance, you can do just fine if you have a solid real estate portfolio.
Real estate 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. Now, these properties are funding my retirement.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $954,000 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.
Best Private Real Estate Investment Platforms
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private real estate funds. Fundrise has been around since 2012 and manages around $3 billion for over 350,000 investors. The firm primarily invests in Sunbelt residential and industrial real estate where valuations are lower and yields are tend to be higher. For most people, investing in a diversified fund is the 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, 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. Just make sure to thoroughly screen each sponsor before investing. The older and wealthier you get, the less you will want to spend time managing physical rental properties.
Both platforms are long-time sponsors and Financial Samurai has invested $270,000+ in Fundrise funds so far.
Recommendation To Manage Your Finances Easier
The best way to build wealth is to get a handle on your finances by signing up with Empower. They are a free online platform which aggregates all your financial accounts on their Dashboard. This way, you can see where you can optimize.
Before Empower, I had to log into eight different systems to track 28 different accounts. Now, I can just log into Empower to see how my stock accounts are doing. I can see how my net worth is progressing and where my spending is going.
One of their best tools is the 401K/Portfolio Fee Analyzer. It has helped me save over $1,700 in annual portfolio fees I had no idea I was paying. It's the best tool to help you beat the median 401(k) balance by age. You just click on the Investment Tab. It then runs your portfolio through their fee analyzer with one click of the button.
Another awesome feature is their Retirement Planning Calculator. It uses your real inputs to run a Monte Carlo simulation to best estimate your retirement financials. Definitely see how you stand!
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Why The Median 401(k) Retirement Balance Is So Low is an FS original post.
As always, I loved your post and this is a really important topic to all those who haven’t saved enough to date. For some of us who have and might be in our mid 50’s, the leap from your age 55 to 60 numbers is considerable. As an example, we will use your high end numbers for the acct balances moving from $3M to $5M in just five years. By my math it would take an approx 9% return plus full contributions (+catch up) and a nice employer match to get the $2M additional in just 5 years. How do you suppose one should do that given the age risk and the considerable rate of return required, or is this number just too high?
Thanks as always,
Paul
Two other private equity crowdfund sources that I’ve invested in, besides Fundrise are YieldStreet and Percent. Percent is definitely the best of the three. I believe both require accreditation, which means “have a lot of spare money to invest”.
And I have some retirement age friends who are even well below the median for the 401K, not good.
Hello. Enjoy reading articles on your website. What made significant difference in my 401K value was taking advantage of a Self Directed Brokerage Account feature. Chose to follow gut instincts then buy and hold attitude; a wild ride but has paid dividends. Guess I was very risk tolerant; not for everybody, and confirmed in talking in general to others. Found my approach to be very unusual and full of risks.
This is a late-to-the-party comment, but aren’t these median 401(k) values based on accounts and not individuals? My 24 year-old daughter has a $2,000 401(k) from her first employer, a $4,000 balance in a second account from her current employer and a $12,000 Roth IRA that she is funding with savings after maxing out her employer 401(k) match. I think that some of these things would note an average balance of $3,000 from the 2 401(k) accounts, and 10 years from now when her 2nd account is $100,000 and first is $4,000, the data may interpret that as an average account situation of $52,000. Am I wrong that these old accounts are throwing the data off?
My thought too. I converted a 401k with a previous employer to an IRA for lower fees. That money disappears in these stats but it’s still a component of my savings.
I agree. I think it is highly likely individual account balances are being confused with total retirement assets. If someone has multiple accounts with some at Fidelity, others at Vanguard, and still others at Schwab, who can link them all together to get an aggregate amount other than Empower/Personal Capital? I’d love to see statistics from Empower on overall balances. I think the results might be very different.
In the case study that said:
“ 7 years ago at age 37 in 2008 I had $125,000 in my 401k and then….BOOM! Stock market crashed and my 401k was worth $80,000. Yeah not fun. 7 years later it has now recovered but that’s lost years and now my 401k is worth $130,000 ”
What is not mentioned is that he MUST have made a horrible mistake in either stopping/slowing his contributions during a market “crash”, and/or switching his allocations to something more “conservative” during the “crash”. I have been 100% S&P 500, never flinched, kept dollar cost averaging in throughout every recession/“crash” in the last 20 years, and it has never take me anywhere near 7+ years to get back above any local mins. My returns have also crushed REIT so idk why you are so big on REITs, but most of what you say otherwise I agree with.
Thanks for pointing this out. 7 years later was actually 2015 for this fella. Obviously, if he kept investing, his portfolio would be much higher today.
However, the still doesn’t nullify the point that a divorce set him back.
Regarding asset class performance over the past 20 years, REITs have actually performed best. Here’s the data from JP Morgan Asset Management.
But even better, is owning physical property with leverage, tax deductions, rental income appreciation and so forth. It’s much easier to take big positions with real estate, which may end up creating much more wealth than buying an S&P 500 index fund.
There are many ways to peel a mango! The one thing is that investors have made so much money since the start of the pandemic that many are living it up in the YOLO Economy and taking things down a notch.
Personally, I’m taking a sabbatical for a couple months b/c there’s no need to work as hard for money anymore.
Hey Sam,
You have great financial advice but a lot of your projections are based on people starting work after college. Have you though about doing a few articles catered toward those with late starts due to long education (lawyers, physicians, PhDs, etc)? I think a lot of your readers fall into these categories.
Yes, you would use the Years Worked column instead of the age column. And where there is no Years Worked column, then you would do the calculation yourself to match up the figures in the chart.
I’ll add more Years Worked column in future charts.
I always recommend starting saving for retirement while you are young. You may only start your career in you 20s, maybe even 30s, but you are probably working and some of the money could be used to save for retirement. I was capable of saving 5 figures for retirement before I was 20 and before I started my career. That is a rare opportunity though and I understand why people may not be able to pull this off. But even if you only start with a thousand you would have more than the median person if you invest in a stock portfolio.
I am looking at a related subject or which there is almost nothing out there so wonder if the readers of this blog have a point-of-view on this. One pension fund manager mentioned that Boston Consulting Group did a survey for them. One of the unintended and unanticipated outcomes is that defined contribution (401k, IRA’s etc) retirees actually save more IN RETIREMENT than those that receive a regular pension. Presumably because of the certainty of the income flow. Are there any other studies or personal experience that bear this out?
Can you take money out of a traditional IRA, then transfer it into an existing ROTH IRA? What are the tax consequences?
thanks,
Debra
The most common reason for low average 401k balances wasn’t mentioned anywhere: most people have multiple employers, and hence multiple 401ks, over the course of their careers. What matters then isn’t the balance in each individual account, but the aggregate amount for an individual or family. Financial surveys, and the resultant advice, should be focused on that statistic.
This. Less than 10% of my portfolio is in my current 401k, and I’m likely about to make another move. Surveys of 401k balances in isolation are not at all useful. What’s the average tenure these days, 5 or 6 years?
Anyone who is organized with their finances consolidates and rolls over their 401ks. I don’t think this median is that far off from reality. Most Americans live paycheck to paycheck… probably 60-70% have barely anything saved in a 401k or pillage it often.
Does it count if it’s a rollover IRA? And with a different broker?
I’m 27 and making started making $40k and now I’m up to $65K in D.C. I’ve already stashed away $20k in my retirements accounts and that’s after paying off $78k in students loans. If you’re making $50K+ then there is definitely a way to fill up your retirement unless you have kids then that will make it tougher, but I know people doing it.
All here is well and good advice. Let me add one thing to it. Passive income. The POWER of actively investing vs handing your money all to someone else for hopeful 7% returns year over year.
Take that cash in 401k if enough and buy rental property potential place with low risk. Rent them. Generate positive cashflow on them as early in life as possible. Pay the interest back to your own 401k you borrowed from. Properties paid off by retirement, or if you generate enough substitute a salary and retire early pursuing your own business or life dreams.
401k is a must I agree, but its foolish to bank your retirement on how the economy is going to be doing when its time to pull it out.
Stats – 34. 5 kids. Wife makes 60k Salary, I make 50k salary. My 2 rentals net 1k positive cash flow while also paying all taxes and mortgages. We also own our house now that we live in.
Networth above our debts is 150k. Average person our age is 8k networth give or take.
at 28 I had zero 401k, 40k in debt from a divorce, no house, horrible credit. Meet with a lender on how to obtain your first property as soon as possible. Go FHA, live in it 2 years, move out, rent it. Do it again.
The 8k down on my first place will net me over 1 million in cash over 30 years. Half of this will go to the taxes and loan of course, but thats 500k in cash flow. After 30 years its paid off unless I do it sooner. I can tell you that 8k in a 401k will never compound enough to do that.
Disagree, at my company I’ve seen people’s 401K grow to 1 million in 10-15 years. I’m small on the totem pole at the company 13 years in, have 600K in my 401k and I’m in my early 40s and started late investing in my late 20s
Hi Sam,
Dusting off this older post. I was wondering if you have any advice for how to save if you have a pension set up with your company of employment? I realize that this is rare to find these days – but it also means that I can’t find a lot of advice online on how to save when I have this to fall back on later.
Some context: I live and work in San Francisco and am 28 years old. I contribute 8% pre-tax to a 403b and have a pension plan with my employer on top of that.
Thanks!
I would save as if the pension plan wasn’t there at all. Take control of your own financial destiny, because there are no guarantees that pension will be there when you retire.
I graduated college with lower debt.
Highly Educated Couple (late start, high college debt) – This is one of the reasons why I’m against the constant rant to tax high income. Everyone ignores the making of the pie, they just see the result and want to help themselves to it.
I like how he doesn’t even respond to this case study 4. He just quotes a comment he receives. Nice case study, genius. Nobody has 500k in 401k at 35 except some investment banker who had connections to land a very high paying job right out of college. This whole article and all of your projections are a joke. I’m in the 95th percentile and have been quite prudent in my savings and have 120k at 34.
There is another possibility. You’re actually not in the 94th percentile and you’re not doing as well as you think. How long do you think you can last on $124,000 in retirement savings?
Brilliant response. I suppose that *is* a possibility. Tell me what percentile 235,000 AGI is though.
And considering I’m not retiring at 34 and plan to save for another 30 years or so I don’t have to worry about your hypothetical question.
$235K AGI is around top 5% in income, but that’s worse if you only have $124K in savings. I thought you meant 94th percentile in retirement savings amount.
But like you said, if you plan on working until 64, your retirement savings amount is not bad at all.
Just know that plans do change.
https://www.financialsamurai.com/importance-forecasting-misery-happier-life/
My point was that you didn’t really do a case study 4. Many people in high income brackets are there because they did graduate or professional schools (JD/MD/PhD etc) and didn’t start working and saving at all until almost 30 and the oftentimes were saddled with very large student loan debts to repay first. My other point was that your target for young savers is really only possible if you somehow come out of undergrad and land yourself a six figure job and have no student loans. those projections are just not realistic for 99% of people.
Hi Mark,
I did not had $500K at 35 but it was pretty close (approx $440K). I am not an investment banker and did not land 7 digit salary out of college (started out making $44K). I guess my trick was not to start family and buy a house until I was almost 40. I maxed out my 401K and invested as much as I could in after tax money into stocks. I realize this is not a typical situation as most people choose to start family in late 20th/early 30th. My point is that it is possible even without 7 digit salary, but obviously large salary helps :)
Thank you,
J
Living with your mommy and daddy doesnt count
Personally I think you need goals for your accounts in retirement. It is inadequate to just “max out the 401K” as a plan. It ignores the actual granularity of need and risk in retirement. In retirement the 401K will help you max out your taxes. Tax rates are progressive and RMD is progressive so your tax bill is progressive squared. In retirement since the government owns part of your money and is in control of distribution if you have a big wad your screwed. If tax rates go up or RMD % goes up your screwed squared. In retirement you need WR money and self insurance money. WR money to live on and insurance money in case you get cancer or start alzin. The chance of cancer is 1/3 and the chance of serious cancer is 2/5 of the 1 that gets it. The average treatment cost can be as high 92K/yr and the average joker that is afflicted is broke in 4 years. Alzheimer’s has a 1/10 incidence at 65 increasing to 1/3 by 85 and has a 12 year average longevity meaning on the average you can linger for 12 years before death. If you are married both of you are going to die so there is a better than even chance one or both is getting an expensive disease. In addition taxes are often calculated around married filing jointly when a spouse dies and RMD is in force it can kick the surviving spouse up 2 additional brackets as a single. So your max out strategy is a Sword of Damocles waiting to lop your wife’s financial head off once you kick the bucket. A better choice is to max out tax efficiency in targeted accounts. In my portfolio I have a Roth account with $1M I Roth converted from the TIRA/401K. I left 600K in the TIRA in bonds. When that RMD’s it will throw off about 30K/yr as a taxable annuity and grow slowly. My SS is 50K of which .85 or 42K is taxable married filing jointly is good to 104K top level with standard deduction meaning my 72K income can grow for many years and still be in the 12% bracket. In the 12% bracket I can pull post tax money out cap gains free so I can easily pull an additional 50-60K/yr out at virtually no more tax. I also have a few hundred K of tax loss harvest available from recessions gone by for when I finally move from .12 to .22. This is maximum tax efficiency. If I die my wife’s taxes go up slightly not dramatically. I have several mil in post tax money to draw from as needed. The Roth just sits there compounding and I don’t consider it as WR money at all. It’s insurance and legacy money if I alz I’ll be in a good nursing home instead of a snake pit If we both alz there is enough there to get the job done. If the widow make takes me and my death is cheap my kids will eventually get the Roth. So that’s 4 accounts earmarked for specific reasons taxable tax loss harvest and residual TIRA is for WR and Roth is for insurance/legacy. I also have a 2 tier risk profile My main portfolio is risked at 10% or 2/3 market risk but I have a low 1/4 market risk “emergency fund” risked with a total stock short term treasury efficient frontier tangent portfolio. It turns out the biggest SOR risk is in early retirement. If you have 3 or so years of WR in a low risk account you can close off the high risk portfolio until the recession is over re-balancing as necessary. By living on the low risk money you effectively re-sequence the SOR profile to a better sequence saving the portfolio. The ability to re-sequencing is most important in early retirement. About 10 years in you can start some withdrawal from the emergency fund if desired. You need to fund all of this as you grow your money.
If you look at your Personal Capital monte carlo graph it proceeds to age 93. It has a maximum projected. THIS IS YOUR STARTING POINT. You calculate the max projected at your death and work backward to whatever age you are now and that informs you on what you will need to save and how you divy up the money into accounts based on tax efficiency. Then and only then will you really understand how to adjust your appetites. My projected end of life portfolio is 15M my projected need between now and my wife’s eventual death is 5M. I will likely go first, she is younger with long lived genetics. I have it planned at the 50% confidence level, 10% and 5% and have a 99+% chance of success regardless of SORR
You wrote way too much info. Not many people want to read a massively long comment. Also, you went on way too many tangents. All in all your comment isn’t worth reading in full.
Talk to yourself.
But arguably shouldn’t the balance be low for most young people because they should be throwing their money at student loans and other debts first?? These numbers are astronomically higher than they once were. If many company’s don’t offer a match anymore isn’t it simple math to put off 401K contributions?
Wasn’t able to start putting into a retirement fund until I was in my 30s, mainly due to a combination of student loans and medical debt, and with my income I can’t even come close to maxing out my contribute to an IRA alone (the mere idea of also having a 401k almost blows my mind – I’d be homeless). With that said, according to these figures, I’ll likely never retire. With the aforementioned medical issues this likely won’t be an issue, but it still warrants some rumination. In fact, the only people I know who come close to meeting these goals are the small minority of individuals who make 150-200k annual income, which are no indicative of the adult population at large. With cost-of-living going up, wages stagnating, and most people making abysmal 50-figure incomes, becoming a swing trader with a bunch of investment properties isn’t an adventurous risk, it’s just not a reality at all.
Mr. Samurai,
You always post such an interesting and insightfull articles. I will share my part. Me and my wife are engineers. I am 37 and she is 34. I started working from age 28 with a PhD and she started working from age 29. In sort, for around 10 years of work I am able to save $190K in 401K (including employer match (5%) from old company and maxing out from last 5 years and no matching from new employer). My wife has $115K with 5% employer matching.
Do you think, with two ( 4 and 7 year olds) kids, together we saved around $300K in 401K so far, is good. No debt except mortgage. Are we on right track?
Please let me know.
Thanks,
Sam
Maybe you shouldn’t compare your live with 99% of us american who struggle to make ends meat. Everyone is saying the economy is so well but my wage hasn’t gone up in the past 8 yrs except for the COLA. I actually find these figures great. I’m 36 and I wish I had 24 grand in my 401k
You really think 99% of Americans struggle to make ends meet? We live in the wealthiest country in the world where making $30,000 a year puts us in the top 1%.
Abolish welfare mentality. There are janitors making $250,000 a year.
I don’t want to write financial posts about making readers go broke and miserable.
Related:
Ranking The Best Passive Income Streams
Is that suppose to help me and make me feel better? How? I earn 48k a year and can’t barely put food in my Family’s table so I’m sorry if I don’t feel I live in the wealthiest country in the world! Maybe you do !
No, but it should help motivate you to realize that you can work on a side hustle, start your own website, or do other things to help you make more money. But at the end of the day, it’s up to you.
Sad state of affairs where people have to have side hustles to have financial security.
Remember in the 80s when a shoe salesman in Chicago burbs had a house, SAHM and a few kids… sure he was broke and could barely afford food, but at imagine on a shoe salesman salary these days
This was the same shoe salesman that also scored 4 touchdowns in one game while at Polk High, right?
City championship game
Move to pittsburgh. Happens all the time.
Mark,
What are you talking about? Job markets change. Your comment is like saying “Remember the good old days when a stage coach driver in LA had a house, a SAHM and a few kids…sure he was broke and could barely afford food, but at [sic] imagine on a stage coach driver salary these days.”
Mark, labor markets change. People buy shoes online for much cheaper than they ever did from a shoes salesmen with a much wider, diverse selection. Get use to it. And stop whining.
Isn’t another reason why 401k balances are low is that people go to different jobs? When people go to a different job they often roll over their 401k to IRA. Then they start their balance of 401k at zero. I think these statistics from Fidelity and Vanguard are misleading when they look only at 401k and accounts rather than the sum of 401k and IRA.
Sam,
Interesting article. Reading it and the comments…my concern is that for most people it’s unreasonable. I don’t see how most people can afford to max out their 401K and do what you suggest. I’m not saying you aren’t giving great advice. It’s just life gets in the way.
I’m 47 yrs old (Old man), worked at NASA for 22 yrs after grad school in Houston. Pay is ok, I make around 100K now (Started at 30K). I have a 25 yr old daughter, that I had to pay for school. I had a hurricane destroy my house. So expensives pop up.
So even though I make a good salary, I can’t make the max contribution. I know a lot of people around my age that either don’t have a 401K because they can’t afford it and are just surviving or barely contribute.
I would love to max contribute. I currently can only sock away 8% with a 5% max. I do have 333K so I will maybe make your low end.
Your comments above seem to be above average salaries. I mean the average salary is what 60-70k in the US?
I am curious. Why you are doing total savings vs salary? Most sites do a percent of your current salary that they expect you to live on.
Again, great job. Look for me under a bridge in 20 yrs!
“I mean the average salary is what 60-70k in the US?”
I’ve read that is is within that range, but I have also read that it is in the 50s. If you have a handful of people who make 30k, and one who makes 120k, though, it tends to fudge the numbers.
Your article is a good one. Im a small business owner and my wife and I are quite a bit behind your threshold and plan on retiring early. Our stats are ages 34 & 36. 155k wife IRA, 130k in mine. 400k in brokerage account. 785k in real estate that’s owned free and clear. 35k in universal life insurance policies between the two of us. There area lot of different vehicles people have for retirement. Even though I am way below your threshold I am confident we will be able to be FIRE and retire early. My vehicle has the brokerage account and it has real estate. Now having said that you should discuss some of the other alternative spots people may have money. Especially the higher wage earner you gave examples of. Earning 150k a year you can still only stuff 18,500.00 in a 401k. They should be exercising options. If they can’t afford to save additional they are likely living beyond their means. With a 401k the appreciation really starts to hit hard in the last few years the money sits there.
Good information. It is always easier to comprehend in a “case study ” example that you can compare to your own real life. There were at least a couple case studies to which I could personally relate.
I would like to make an unsolicited and likely unwelcome point on case study 7. I don’t know if a political statement was being made or what the intent was, but I hope it is obvious to others from the case study. If she could not be legally married because the “gender was wrong”, this person would have no legal responsibility for the deceased loved one’s medical bills. Paying them out of some misguided loyalty to the deceased seems foolish in this example.
I realize this was probably just a fictional example to illustrate the situation. In addition to being more careful savers, it is just as vital in the long term for people to be more educated in their spending at the same time. Seems like many $1000’s and sleepless nights wasted over a non collectible debt. The law is the law, so hopefully, a spiteful decision to prove a social point didn’t elicit them to join these estates in a trust outside of a legal marriage. If so, it backfired and put the other partner on the hook for financial disaster. For my social statement, it is even more egregious that if they were legally married, the surviving spouse would still be on the hook for these debts after such a personal loss. But, like I said, the law is the law.
Sam, how confident are you at your job? Do you feel it’s stable? I was in the same predicament as you. My wife and I both owed about $50K student loans. We had lower interest rates, but the crooks called Mohela bought out our student loans and jacked up our interest rates to close to 8%. I’m pretty sure that’s illegal, but what can you do? We were paying a good $4,000+ IN INTEREST ALONE per year!
So, I took out a 401K loan and paid off that sucker. I’m currently paying my 401K loan back, and the interest (like 4%), goes right back into my 401K! Student loan interest deduction you say? I wrote a complicated Excel program that calculates taxes down to just a few dollars (due to the IRS using tax tables and me using formulas). It’s got everything you can imagine, almost any scenario, all sorts of deductions, itemized, self-employment, etc. Heck, it even tracks my expenses so I know exactly what I’m spending. It confirms I don’t save a whole lot with student loan deductions, which is what helped me make that decide to take out a 401K loan. The “lost gain” is made up by not having to pay ridiculous interest + 401K loan payment goes back to me. Plus, married, you get penalized and the max you can deduct is $2,500. Anyways, I started doing insane overtime (15+ hours), which brings me into the 6 figure level. At this rate, I’ll pay off ALL my debt in 2 years, and then it’ll be like $40K+ after-tax all free, AFTER all expenses are paid. I am maxing out 401K at the same time and maxing out a Roth IRA too. Once my income is free, I’m going to split my contribution half into a Roth 401K (which thankfully my work also offers).
I also created a super duper cool Excel tool that does all my 401K/IRA calculations, including inflation, median household income, different rates of return, projections etc. Everything. It’s super cool and has helped me get my financial bearings back.
Just a thought. Good luck my friend.
BTW, you MUST do at least 15% or more into 401K, and max out a Roth IRA. You will thank me later, trust me. IRS Required Minimum Distributions don’t apply to Roth IRAs, and it’s what the rich bastards use to transfer money to their kids, tax free. When you do thank me (not if, but when), please remember I accept donations *wink*
Hey Sam,
25 years old and I am about to graduate from grad school. After 6 months I will enter repayment on my loans. Because I chose to work full-time while going to school full-time, my salary bumped me out of any subsidized loans/need-based scholarships etc. I am looking at $40,000 in loans with a federal interest rate of 5.6%. My question is that I have maxed out my 401k for the past 3 years I have been working (18% of income), I bought a home, paid off a car in full, and currently contribute 6% (at 3%/100% company match) into our company stock purchase plan. Would you recommend reducing 401k contribution to pay off student loans, leasing home out and renting apartment to have some secondary income, or just significant lifestyle cuts?
Hi Shelby,
Nice job maxing out your 401k these past three years. I say KEEP IT UP, forever!
An interest rate at 5.6% is relatively high. I’d follow my FS-DAIR methodology of paying down debt. Check it out.
Also, you should read this post on housing expenses for financial independence to lock down lifestyle expenses.
I think it’s a massive oversight to not reccomend a Roth IRA before an employer 401k. Obviously if you are lucky enough to get a good match then do that first buy Roth IRA for you and spouse should be maxed before 1 more dime goes into an employer plan. The fees in these plans will eat you alive especially as your balance grows. These plans have high fees with a lot less flexibility than a Roth IRA as far as what you can buy. Vanguard Roth IRA doesn’t have fees or even trade commissions if you buy their funds which are generally the most respected in the world for the low expense ratios. Employer plans are generally terrible.