Latest 401(k) Balance By Age Versus Recommended Amount For A Comfortable Retirement

According to Fidelity, as of end-2020, the latest average 401(k) account balance is $106,500. Fidelity holds 16.2 million 401(k) accounts, including my Solo 401(k). Fidelity is consistently ranked as one of the largest 401(k) providers in the country. The latest 401(k) balance by age naturally increases the older one gets.

The median 401(k) account balance, on the other hand, is a paltry $24,800. It's clear that despite an enormous bull run since the 2009 lows, not enough Americans are saving for retirement or don't have pre-tax retirement plans like a 401(k). I'm sure it's a combination of both.

What I'd like to do is compare the latest average 401(k) balance by age with my recommended average 401(k) balance by age for financial independence seekers. Let's see how big the differences are so we can explain how important it is for everybody to focus on their finances.

The 401(k) account is one leg of the new three-legged stool for retirement. The other two legs are post-tax savings accounts and personal hustle. It's important to never depend on the government or anyone for your financial future.

Latest Average 401(k) Balance By Age

Below are the latest 401(k) balances by age according to Fidelity. After a steep 32% S&P 500 drop in March 2020, the S&P 500 has rebounded and is now at an all-time high.

Ages 20-29: Average balance: $11,600, Median balance: $4,000.

After spending so much time in school, the last thing many young folks think about is saving for retirement. Further, because they're just starting to make money, their marginal tax rate is likely to be the lowest of their entire career. As a result, their desire to contribute to a 401(k) isn't very high.

That said, it's important to get into the discipline of saving aggressively and saving often. If you are able to have or develop good financial habits in your 20s, these habits will continue for the rest of your life and make you wealthier.

Related: Achieving Financial Independence On A Modest Income: $40,000 In Manhattan

Ages 30-39: Average balance: $43,600. Median balance: $16,500.

Your 30s is a time for great career growth after spending your 20s learning. Not only should you be earning more, but you should also finally be able to regularly max out your 401(k).

Besides career and income growth, you are likely considering where to establish roots. Buying a primary residence and settling down with a life partner are two items high in consideration.

Ages 40-49: Average balance: $106,200, Median balance: $36,900.

You should be entering your peak earnings years in your 40s. Maxing out your 401(k) should come naturally, but for some reason, life somehow always gets in the way.

Maybe your housing costs are dragging you down. Maybe you went through a costly divorce. Or maybe the cost of raising children is more expensive than you realized.

Beating the latest 401(k) balance by age is extremely important in your 40s because you are in your highest earning years. Now is the time to contribute the maximum to your 401(k).

Ages 50-59: Average balance: $179,100. Median balance: $62,700.

You finally see the retirement finish line. Participants age 50 and older can contribute an extra $6,000 a year in 2019. This catchup contribution is a 31.5% annual boost, which should be put to good use.

Here's a chart that shows the historical 401(k) contribution limits. As you can see, the employer can contribute a heck of a lot more than you can if they are so generous.

The maximum 401(k) contribution in 2021 is $19,500. Let's hope it goes up to $20,000 in 2022.

Historical 401(k) contribution limits

Ages 60-69: Average balance: $198,600. Median balance: $63,000.

You're finally able to withdraw from your 401(k) without a 10% penalty. If you live frugally on only $30,000 a year, you can withdraw from an average balance of $198,600 for 6.5 years before you completely run out of money.

If you so happen to have only the median 401(k) balance of $63,000 at the age of 60, you will likely have to continue working for many more years, if not forever.

Ages 70+: Average: $186,800, Median: $52,400.

Given the median life expectancy is around 78 for men and 80 for women, we've finally come to an age group where the average 401(k) balance makes more sense.

Folks in their 70s are receiving Social Security and many of them have a pension as well from the good old days. If all debt is paid off, having much more than $200,000 at this age probably isn't necessary.

It should be clear by now that the average 401(k) balance for each age group below 70 is too low to afford a comfortable lifestyle in retirement. I can understand the low balance in one's 20s, but by one's 30s, everybody should be able to comfortably max out their 401(k) each year.

After a 16-day government shutdown in 2013, 64 percent of Federal workers said they had less than two weeks' worth of savings set aside. With the government shutdown in 2019, one career survey highlighted that almost 80 percent of Americans live paycheck to paycheck. That's nuts!

Let's now compare the latest average 401(k) balance by age in America with the recommended 401(k) balance for those who wish to enjoy a comfortable retirement.

The assumptions for the below chart are as follows:

* The Guide For Older Savers column accounts for lower maximum contribution amounts available to savers above 45. The column can also be used for more conservative returns.

* The Guide For Middle Age Savers column accounts for lower maximum contribution amounts available to savers below 45. The column can also be used for moderate returns.

* The Guide For Younger Age Savers column accounts for savers who are under the age of 25. They have higher maximum contribution amounts and can be used for more aggressive returns. After the first year, one maximizes their contribution every year to their 401(k) 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. For 2020, the maximum contribution has increased to $19,500.

* The rate of return assumptions are between 0% – 10%. The asset allocation is based off a traditional asset allocation based on age.

* Company match assumption is between 0% – 100% of employee contribution. $56,000 a year is the total amount that can be contributed to a 401k by employee and employer for 2019 ($19,000 employee, $37,000 employer).

* The three recommended columns should successfully encapsulate about 80% of all 401K contributors who max out their contributions each year. 

The Latest 401(k) Balance By Age Versus Recommended Balance For A Comfortable Retirement

Latest 401(k) Balance By Age Analysis

As you can see from the chart, the average American 401(k) balance starts off light compared to the recommended balance. The gap really widens over time due to the power of compounding. Let's not even look at the median 401(k) balance column which is so pathetically light.

For a closer apples-to-apples comparison, you can compare the Average American Balance column to the Middle Age Savers column. In this comparison, the financially savvy investor will have greater than 10X more in his or her 401(k) by 60.

Please recognize the importance of consistent savings and compounding returns. Over a period of several decades, even a 1% difference in returns or savings rate makes a big difference.

Eventual 401(k) Millionaires

My default assumption is that everybody should have at least $1,000,000 in their 401(k) by 60. The $1,000,000 can come from various tax-advantegous retirement accounts. The range is between $1,000,000 – $5,000,000.

A $1,000,000 gross 401(k) account ends up being roughly $800,000 after-tax. Multiply $800,000 by 3% – 5% and you get between a $24,000 – $40,000 a year safe withdrawal rate. However, with interest rates plummeting post-pandemic, it's wise to lower your safe withdrawal rate further.

Depending on where you live and how luxurious you want your retirement to be, $24,000 – $40,000 a year may not be enough. If you plan to retire in a high cost of living area like San Francisco, having 5X that amount for spending might be more appropriate.

In addition to building a big 401(k) balance, develop a large taxable investment portfolio as well. You want to build enough capital to generate passive income.

Passive income is the holy grail of financial freedom. Once you have enough, you are free to do whatever you want well before age 59.5.

Now that you know the latest 401(k) balance by age, it's time for you to thoroughly beat the median and average figures!

Diversify Your Investments Into Real Estate

Contributing the maximum to your 401(k) is highly recommended. However, the funds cannot be touched without a 10% penalty until age 59.5. Therefore, it's important to also invest in taxable portfolios and real estate.

Real estate is my favorite asset class to build wealth. It is a tangible asset that is less volatile, provides utility, and generates income. If you want to earn income you can tap now while also diversifying your investments, real estate is it.

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. 

Recommendation To Manage Your 401(k)

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Make sure your investments are properly allocated based on your risk tolerance. With Personal Capital's Retirement Planner, you can better plan for your financial future. I've used them since 2012 and have seen my net worth skyrocket.

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97 thoughts on “Latest 401(k) Balance By Age Versus Recommended Amount For A Comfortable Retirement”

  1. I worked a factory job that never paid more than 18 bucks an hour started out at 5 bucks an hour. Worked about 35 Saturdays at 5 hours each a year for 33 years. Got some early profit sharing (less than 20k total) put in 401k. Retired 4 years ago at 62. Have 1.2 million in 401k. Wife has .6 million. 240k in other investments. Built new house and have no debt. I took funding 401k seriously. averaged 10% contribution rate with a 3 % match. Enjoyed my working life and now my retirement.

  2. I have $360k at 45 year old. Currently my income is at $150k (salary + bonus) but this relatively good salary happens because of two recent promotions so I am behind the recommended target. I was making under $100k for most of my career. I am maxing out my 401k and recently added a 3% salary contribution into Roth IRA with my Fidelity account. I hope to have $2.5 mil to $3 mil in about 22 years. I have been with my company for 16 years and if I continue until retirement I will also have a $2100 monthly pension or $330k lump sum at retirement.

  3. Hey Sam ,
    Thanks a lot for doing this amazing work ! I have become a financial literate just by following your website . I’m a migrant and because of my status , I couldn’t do a 401k – I’m 37 and my husband is 41 . We have a sep Ira and it has 125K in it now . Other than that , we have about 500K invested with personal capital wealth management – we plan to retire at 65 . Do you think we are doing ok ? Please suggest how we can improve our financial future ! Again appreciate your inputs greatly . We have a child and she is 10 now . We also have about 25k invested in a 529 .

    1. Hi Sarag,
      I think you are doing fine. Your balance is $625k and assuming that you can put away an additional $30k each year then you will have close to $4 mil after 26 years assuming only a 5% gain each year. $4 mil in 2046 is around $2 mil of 2019 USD. Without a mortgage and with SS, you should be comfortable.

      I think you should continue to contribute to your daughter’s 529 account and aim to have $100k by the time she is 18.
      Good luck,

  4. Turned 35 on Thursday (2/14). Currently have ~$550K in 401K. $240K in stock for the company I work for (+$40k in unvested awards). $300K left on my mortgage @ 3.25%. My wife has ~$400K between her 401K and stock in the same company. No debt. So, now what?

  5. I’m turning 40 this year, have 100k saved in 401k and various IRAs. No house yet, because work has not made it possible to be where we want, but it will happen within the next two years. It’s scary seeing this, but with some recent changes in work, I will be able to max out my contributions and then some for the foreseeable future.

    When you use that compound interest calculator, you can actually see what the max contribution and barely any return actually does bring you over 20-25 years.

    Of course, I’m still terrified, but I’ll get there.

  6. Is it possible that these 401k numbers are skewed by people leaving their jobs and converting their 401k’s to IRAs? My wife left her career of 6 years to stay with our kids and raise our family, and I took her $100k+ and moved it to an IRA that had better investment options. Once our boys go to school and my wife starts working again her 401k balance will start from $0 again.

    1. I have relatives that got laid off from their pension jobs, So now they will have a pension, 401k, annuity, inheritance, Social security in retirement. They will do ok.

  7. I hate how much press these average retirement account balances tend to get in the media. Inevitably they create a lot of overstated hullabaloo about how unprepared Americans are for retirement. Americans move around a lot more from job to job these days, meaning they are creating a lot more brand new 401ks each year. Most people don’t roll their 401k balances to their new 401k when they change jobs; they instead roll them to IRAS. Retirees with the largest balances also inevitably roll their 401ks to IRAS when they retire – meaning the average and median 401k balances will always remain skewed to the low end.

    Not to mention the fact that many households have several. My husband and I have 6 retirement accounts between us. My Roth IRA, his Roth IRA, my 401k, his 401k, our HSA, and his old 401k which we left at a previous employer due to the fact that they charge no expense ratios on their index funds. Our total retirement savings are much higher than our average balance would imply.

  8. I hit 5 years of total work this July. I also started working full-time at 21 (after graduation, but birthday is near the end of the year). Current 401k balance is just under $105k.

  9. These saving charts are for what married couples should have in total, correct? I read a lot about this stuff but there never seems to be any distinction in posts like this about if this is total retirement assets for a couple vs. if the info is for individuals.

  10. I am 33 and have a net worth of around $75k; I graduated college in 2009, went to grad school when I couldn’t get a job over minimum wage and did not secure gainful employment with 401k options until 28. I am thankfully now in a position that utilizes my education and pays well enough to max out 401k for the foreseeable future, alongside a generous company match and a separate, additional “pension” plan (7% of income paid in by employer).

    In the Denver market my biggest challenge by far is deciding where to live; as I’ve discussed with many transplants, you can’t buy a pile of poo for $300k here (or rent one for less than $1500/mo). Renting wins financially by every calculator I find, but I can come up with no desirable living situation that allows me to aggressively pursue financial independence.

    I have been reading your blog over the past month and will certainly continue to follow it; I already have some winning strategies in place, like driving owned vehicles and living debt free, but I cannot for the life of me figure out how to achieve that <10% cost of living in this market (relocation isn't an option at this time).

  11. I’m in my late 30s and so I’m entering the prime in terms of receiving high earnings. I’m above the average in my age range and should have had more in my 401K if I saved more in my 20s and early 30s. But now being aware of how important it is to contribute on our retirement accounts I am more than ever focused in maxing it out. Other than my 401K, I also have an IRA and maxing out it as well.
    I am hoping to have just over a million dollars by the time I can start withdrawing from these accounts. I have roughly 20 years worth of contributions along with compound interest kicking in to see if I can reach that goal.

  12. I’m 45 (didn’t realize I was “old” yet), and have about $700K in my 401k’s and IRA (I rolled over one of my 401k’s to an IRA). I couldn’t max out my 401k for about 9 years because I worked at a company where I was considered “highly compensated”. I wasn’t really highly paid, but the company had a lot of call center employees so that brought down the calculation for what was considered highly compensated at the company, so I could only contribute 10% during those year, which did not max me out.

    I have significant other assets as well though that I plan on using in retirement so I think looking at 401k balances is only one piece of the financial picture for retirement.

  13. We are older – it’s fine and our retirement savings are fine.

    Reality is a huge FIRE extinguisher. FIRE only works if you have the money and something else meaningful to do. So do not forget Social Security.

    Social Security is a really terrible investment; however, it is forced savings, and the maximum retirement benefit for two people today is a little over $64,000 a year. At a 4.5% required retirement withdrawal rate a couple would need about $1,433,000 in a 401K (or other similar plans) to generate that income. That $1.4 million is not net worth, but it is like someone loaning you $1.4 million at no interest to generate income “until you did not need it anymore.” Not bad.

    For everyone here, 15% if that $64,000 (about $10,500) is not subject to federal income tax and only 13 states currently tax the benefit (Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, West Virginia.)

    We find we could live extremely well on a decent but not great pension, Social Security and now very diminished income. The forced “401” withdrawal is far and away the largest portion of our income, and that after-tax income almost perfectly matches the unbudgeted yearly amount. Old ways die hard and we still end up saving about a quarter of it, “just in case”

    1. I like to view Social Security as ALSO a bonus, just like the 401(k). If it’s there in my 60s, great. If not, fine. I never counted on it in the first place.

      Don’t count on the government folks!

      1. I calculated my social security deductions over my life time. I figured that after 3.5 years I will have received that amount back from SS. Another 3.5 years I will have gotten back what my employer paid in. We have been living off our SS during this Covid 19, Not much spending with all the restrictions. Our 401k balances are 22 times our last year salary and continue to go up. My sister and husband have been retired 6 years now. My sister gets half the amount of SS her husband gets, and never worked a day in her life. We counted on the government. Don’t know what will happen in the future. But Life so far is great in retirement. I retired at 62 and had to pay for expensive cobra insurance But with my wife’s expensive health treatments it was well worth it. Now on Medicare with additional supplement and its much cheaper than what cobra cost. So far the government has taken care of us.

  14. I’m 33 years old, I’ve maxed out my 401k the last 6 years, I have around 220k in my 401k right now not including my 80k pension, I own a duplex that brings me in 600 profit a month, I acquired the property by doing some taboo investing by hardship withdrawing 120k out of my 401k to purchase it, I’m not a good saver so I go 99 dependents a lot and offset it with 50%-84% before taxes so a big chunk goes in…I own a couple of classic cars that I purchased for under 5k each, I think those are mini 401k’s to me because I can always sell them, I buy gold coins or silver kilos when I feel like blowing 600 dollars and I’m probably going to buy some land in a hip spot to sit on it, I’ve done pretty much everything you shouldn’t do, I live decently in most standards but I’m a dont believe everything people publish or I wouldn’t have a nice big house and a rental…live life on the edge and do a bunch of investments because they will pay off…that’s my 2 cents and I dont care what people think

  15. Age 33. 260k only in 401k. 36k in pension. Didn’t max first 5 years or so but still contributed. Also went pretty low risk. Will easily hit 3.5 million by staying on track.

  16. Fascinating data points. I feel fortunate that I’m doing pretty well according to your recommendations table for my age if I consolidate my retirement accounts together. I didn’t max out my 401k when I had one for several years when I first opened it but I at least I was contributing what I could. I pushed myself to start maxing out my contributions as my salary grew and it really made a difference in growth.

  17. Delivery Boy

    Sam, right on the money in your analysis as usual. I am 52 and have been with the same firm my whole career. I just completed my 25th year in our 401(k) plan (1994-2018) and have $1.3 million. Nothing special about the investments. It has just been all about maxing out the plan.

  18. Great analysis, Sam. I’m a 401(k) Millionaire, and retired in June 2018 at Age 55. Ironically, when The USA Today asked if they could interview me about being a 401(k) Millionaire, the journalist said she was having a hard time finding anyone who had over $1M in their 401(k).

    A very important leg of the stool, and unfortunately the 401(k) is under-utilized by most folks. Thanks for pointing our it’s importance.

    1. I can’t think of anyone in my cohort (folks who graduated with me) that won’t have around $1M in their 401Ks when we retire…the surprise isn’t that we saved so much but how could you not save that much when making what we make…and we all have 10+ years to go until 67.

      I know the sample size is small and it’s not scientific at all but just doing the basic 401K with a good middle class engineering career should get you to the $1M mark.

  19. Looking at the chart my wife and I individually do not make it. We got a bit of a late start on savings, but we did make up for it in investments outside our 401k. This great bull run has been great to us. So if we include both of them, then we are each in the middle. I say each as we were both established when we met and are the same age. I’m only a few days older than her and we met in our early 30s; both never married. While I wish we had more in the 401k, a bit below middle for our age, I am glad our total investments put us into a good place.

    Now for an anecdotal story about the money saving part. My father was a union man for his whole working life. His union contracts always were 3 years, so a portion of his paycheck, every one, went to savings bonds. We knew this could happen, and I do recall some long strikes. Dad had a network of friends and family who could put him to work when he was out, and those bonds helped as well. Mom was a secretary, and that helped as well. The point being that if you know this can happen, you have to find a way to save for it. Most of those years, there was no strike, and the strike fund became the vacation fund. Those were great years.

    For me, even when I was making $18,000 a year as a young LT in the AF, I still put some money away. It was only $50 a month into a IRA, and I kept a bit more of a emergency fund, but I was not concerned with not getting paid in a government shut down. I don’t recall the active duty folks ever being hit.

    I think the fundamental issue here is two fold. I think a lot of people have not had the kind of financial education that I have had. My local school district had a basic financial education as a required Senior class elective. The USAF had it as part of indoctrination training for both myself and my father 30 years earlier. The basics of keeping an emergency fund, investing some money for retirement, and keeping a budget were the basics taught in those classes. Luckily for me, I had parents and grand parents who reinforced this knowledge. I hope the FIRE movement helps bring others to it

  20. The whole bit about government employees, people with stable and secure incomes (normally) who should have been in financially good shape relative to the general public, not being able to weather a couple of missed paychecks is depressing in what it says about human nature.

    There was a time when I lived paycheck to paycheck . . . no, come to think of it, there really wasn’t. Not even when I was only making 300 a week, right out of college, back in the late eighties.

    1. Elizabeth Pershing

      I was thinking the same thing, don’t people have emergency funds. Loss of paychecks can be because of many reasons, government or not. I wonder if anyone who was on attack thought for even a minute, “Hey, I don’t work for the gov’t but this could be me if there are layoffs or I get sick. It’s time to save my emergency fund”.

  21. Why does the required amount not go down as you get older? It should go down because:
    1) You have been working longer and Social Security counts your 35 highest earning years. For each year until 35 years working it should go down.
    2) You don’t need the money to last as long because you’re older.
    3) The Social Security benefit is coming sooner, so it gets discounted less and becomes a bigger part of the retirement income picture.

    It seems to me that the amount needed to retire when young is extreme. And for each year worked, the amount you have goes up and the amount you need goes down. They should cross at the point of financial independence.

    1. Because the more you have, the more you make. It’s the irony as you need less since you have less time to live.

      You’re free to spend more aggressively while living. That’s one of my challenges this year.

  22. While I think 401k accounts are an important part of retirement planning (I max mine out every year), I think they are overemphasized as the holy grail of retirement savings. The only significant advantages of a 401k are the potential for employer match and asset protection from creditors in the event of bankruptcy or legal judgement. Otherwise, you lose the ability to harvest losses, and investment returns that would normally be taxed at capital gains rates are taxed as ordinary income at time of distribution. I also think deferral “benefit” is also a mixed bag as well. I do not see income tax rates staying this low if Uncle Sam continues to rely on deficit spending to fund the government. I concede that the deferral does provide some flexibility that may enable individuals to be opportunistic regarding when they want to pay income taxes, however, I think income tax rates have a greater than 50% chance of being higher when I retire compared to current rates during my retirement years.

    I think having a significant amount of Roth (IRA or 401k) assets that enable you to make some tax free distributions, as well as, some non-retirement account assets that are more tax efficient are at least as important as your 401k balance.

    I think having a diversified portfolio of tax deferred (always taxed), after tax (never taxed), and non retirement investments (maybe taxed) assets are just as important as asset class (stocks, bonds, REITs, alternatives…) diversification.

    Would be curious to see your thoughts and any strategies you are using to mitigate risk of higher tax rates in the future.

    Personally, I am taking advantage of current low tax rates to convert a large chunk of my traditional retirement account assets into roth account assets.

    1. Wow – my thought exactly. I’m still 5-10 years from retirement and right now the bulk of my savings are in 401Ks. Unfortunately, my money is locked up in them until I leave my employer. I’m still maxing my 401K, but also trying to put as much as I can into ROTH IRAs and after tax accounts. My current thoughts are to retire around 55 years old, use after tax accounts to fund the first few years of retirement (try to minimize capital gains and stay in a low tax bracket) and do partial rollovers to ROTH IRAs each year controlling how much income and tax bracket I am in. I’m still figuring out how this will all work. Might be time to talk to a tax professional.

      1. Have you asked your employer if they allow in service distribution? If so, maybe a way to get a head start on moving assets from 401k to Roth accounts.

        1. Unfortunately, they don’t allow in service distributions. I had to explain to them what they are first. I’m in the max tax bracket now, so it may not be the best time to convert.

  23. I am 38 and my 401k is only $330K, but I have a Roth IRA with $225K and a pension with a present-day lump sum worth $65K for a total of $620K, which looks about in line or just under what “younger savers” would have. So should I look at this from the perspective of only 401k or total retirement accounts?

  24. I agree with the idea of 401k’s and how they force people who do not have self-discipline to save money. However, if you do have self-discipline when you are young, why even contribute to a 401k at all? My first couple years of working (I am 25) I was contributing roughly 12-15% of my salary. However, I was also aggressively paying off Student Loans which I paid off in exactly 1 year. I was also aggressively paying off a car that I purchased, which I paid off in exactly 2 years. Unfortunately, the only way I was able to do this was by living with my parents.

    So, now that I am currently “debt free” I decided to actually lower my 401k contributions to 3% (Company matches 3% only) to receive more cash, rather than have money locked away until I retire. This will give me the ability to potentially purchase a property in the next few years or invest as I please. Hence, my belief is that when you are young, you should focus more on saving up Cash, rather than your retirement savings so that you can buy a property as an investment. Maybe not every “youngin” thinks like me, but i believe it is the best way to go at my age.

    That being said, I do see the benefits of a 401k as you can invest pre-tax money, receive capital gains and only be taxed on it once. Whereas, investing after-tax dollars, you then get taxed on capital gains. Am I missing anything else, or can you provide me with any reasons as to where I may be lacking in my logic?

    1. Albert Einstein said this:
      Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. Compound interest is the most powerful force in the universe.

      You have the power of time – yet you are not maximizing it. Revert your savings dollar back to 401k or IRA post haste! The discipline of forced retirement savings is that once you start paying yourself; you will never miss the $ in your daily life. 25 yrs from now, your acct will look amazing! Run the #’s and see for yourself.

      One mistake you make is that your pretax retirement money will be taxed as income, not capital gain.

      I urge you to reconsider. You can still save for property but don’t cut back on your retirement savings. Drive that car for 15 yrs instead and bank that $ towards your property acct.

      1. Grumps Labastard

        But eventually the issuance of debt outruns the ability to service it. Much like chromosomes have an expiration date, monetary systems eventually get down to their last telomere and then undergo apoptosis. Aka debt saturation and the marginal utility of debt goes negative.

        What does monetary apoptosis look like?

        A revaluation against movable real estate.

        1. Is this a combination of Finance and Science? I’ve read this 5 times and I think I am still missing the point. Can you please elaborate a little bit more?

          1. Grumps Labastard

            Our system can’t tolerate a real positive interest rate without the wheels coming off. Look what a mere 2.25% Fed Funds rate and only 400B in balance sheet runoff has done.

            Too much debt the last 40 years has been unproductive. The system is sclerotic with it. Only a reset of central bank liabilities will fix this. This is why investors have to be wary of in what they hold savings. For the next crisis the very fabric of the space-time financial continuum will rupture and a new game of Monopoly will have to be started with rejiggered central bank liabilities.

            1. How do you reset a playing field of debt? Are you talking about a nationwide/global debt forgiveness with a market crash? It seems like the U.S has the biggest problem with debt but I don’t have any supporting facts for that.

              What have you done to protect your wealth from such a crisis?

            2. Grumps Labastard

              How do you reset the debt game? Simple. Devalue against pet rocks. This game has already been in program post GFC as central banks are vacuuming up all the toxic paper.

              Eventually they’ll have to give up leveraging stimulus, drop the pretense that sovereign debt is not being monetized…go straight to overt monetary transactions which is what all the recent hubbub regarding MMT has been about…MMT helicopter money will fail..the end game will be deleveraging stimulus aka gold recollateralization at a vastly higher equilibrium price band to recap the system.

      2. It is an old wife’s tale. I don’t think Albert Einstein ever said about compound interest. I agree with the financial merit of compound interest in general but don’t agree that our old Albert ever said that anything about compound interest. I said I agree in general because investing in risk assets like stocks or even bonds is a bit more complicated than investing in a CDs, etc.

    2. There are many ways to tap that 401k money early–such as rolling over 401k to an IRA and using 72(t) for penalty free withdrawls of a portion of your nut. You can also try a Roth conversion ladder as well to tap the funds tax and penalty free potentially.

    3. I wouldn’t focus on saving up cash in my 20s. I would aggressively invest as much as possible in my 20s. You can afford to take much more risk while young. The goal is to get that big nut ASAP so that you can take less risk and earn a higher absolute return.

      Do what you think is best!

      I see my 401(k) as insurance money when I’m over 60. I’m focused on building an after-tax nut now.


      1. Sam,

        I know most of the time you say when you are in your 20’s, that you should heavily invest your cash for that compounded interest and higher returns. However, based on a lot of your recent posts, you also mention that the market looks skeptical with potential losses/stagnant growth. Putting this knowledge into my own hands, wouldn’t it be best to time the market just this once in my life?

        1. Many fortunes have been lost or foregone thinking the way you are thinking now. If you are young, put the $ to work and forget about nuances of “market timing.” Over time, it would not change the outcome one iota. The most important thing to know that when young – be in the game.

          Keep it simple and don’t overtthink.

  25. Although I max out my 401k, my company match is only 4% which equates to around 4,500 per year. It would be great if more companies would provide a 401k profit sharing in lieu of a bonus since it is more tax efficient for both the employee and employer. I would much rather have $10k put in my 401k tax free then receive a $10k bonus. I wonder why more employers don’t do this?

    Also, I’m very concentrated on savings outside of retirement plans in order to create a tax efficient dividend stream to pay for my essential living expenses passively. It it a long road though.

    1. Jeff,

      For my employees I give yearly bonuses instead of 401k profit sharing. The reasons are quite simple. First, most of my employees are living paycheck to paycheck regardless of their income. Second, yearly bonuses are a much more effective recruiting and retaining tool than profit sharing.

      When your average employee gets their W-2 they just look at the bottom line. They don’t take into consideration the 401k matches I give them or any other benefits they receive. If they are deciding on whether to take another job with a new company they simply compare what their W-2 incomes are versus what the new job pays.

      I would much rather give them more money in their 401K, however your average employee just wants a larger paycheck

      Thanks, Bill

      1. Good point Bill. 99% of employees spend very little time analyzing the differences in non-wage benefits when comparing employers. The sad thing is that it can make a much larger difference than any wage difference for a similar role.

  26. $300K by the time you’re 30? That’s $37.5K per year. You are assuming either a 100% employer match, a lower percent employer match with a very high salary, or some kind of crazy investment returns. My company only matches 4% of my salary. Do you have stats that most other companies match much more than that? Usually I read your articles and feel like your numbers are achievable if I focus and try my best, but this one seems completely unrealistic. Am I reading it wrong or something?

    1. Some plans have after-tax contributions up the the total 56k yearly limit (pretax + employer match + after-tax)

      1. That can’t be it. Per the IRS, you are not allowed to contribute more than a $19k combined (pre-tax and post-tax):
        “You can split your annual elective deferrals between designated Roth contributions and traditional pre-tax contributions, but your combined contributions cannot exceed the deferral limit – $19,000 in 2019 and $18,500 in 2018 ($25,000 in 2019 and $24,500 in 2018 if you’re eligible for catch-up contributions).”

        I don’t know how Sam is calculating these target numbers.

    1. Look at them as buying opportunities. The markets always recover. This last down-draft we loaded up. Yes, it was scary, but we were waiting and in Dec we sold a ton of puts that portions are now expiring every month. There will be more down-drafts coming. Have a strategy you feel comfortable with, then execute.

  27. I’m going to be one of the outliers in the early retirement model for what I should have in my 401k at this age. I would have definitely been on track and probably exceeded it if it weren’t for one little thing, my divorce at age 39. The judge basically gave my entire 401k over to my ex as part of the settlement.

    I am still quite comfortable in my early retirement plans because although I am limited by yearly contribution limits to my retirement accounts (which I have always maxed out), I have no imposed limits on my taxable/brokerage account or other investment vehicles (mainly syndicated properties).

    As long as my other 2 legs of the stool are sturdy (which they look to be), it is ok that my 3rd leg is a little shorter than the others. My stool therefore looks like an arts and craft project by a 2nd grader but still should do the trick of letting me pick my feet off the ground at one point and sit/relax

  28. I’m 45 and I have about $600,000 in my 401k. That’s pretty good compared to the average American, but I don’t place so well in your chart. I’m not sure if I can hit a million by the time I’m 60 either. I can max out now, but probably will have to cut way back once Mrs. RB40 retires. We’ll see how it goes.
    I feel like your chart is a very high bar. How many people can save that much?

    1. Why do you shortchange yourself Joe?

      With $600,000 now, if you contribute $18,000 a year to your 401(k) and earn a 1.5% return a year, you will end up with $1,054,941 at age 60.

      Have you done the math by inputting figures in a compound interest calculator?

      You contribute way more than $18,000 a year combined between you and the Mrs with her 401(k) and your Solo 401(k). And the risk free rate of return is 2.5%+ now.

      Hmmmm… gives me a follow up post idea. People don’t do the math! OR, people have too little faith in their financial future.

      Or maybe you can do a post on this and highlight the epiphany, b/c surely, you must be surprised now by how little you have to earn each year to get to $1M with your contributions.

      1. If I can continue to contribute the max until I’m 60, then I’m pretty sure I’ll reach a million in my 401k.
        However, I don’t think I can do that. Mrs. RB40 will retire soon (1-6 years) and I’m not going to contribute to my 401k anymore. She has her own 401k.
        Maybe I’m being pessimistic because the stock market is volatile lately?

        1. Don’t you contribute at least the employee max to your Solo 401(k)?

          If you don’t want Mrs to work until 60, then you should compare the amount to when she will work and retire. You can’t compare what you have now, decide not to work and not to save, to the person who decides to work and save until 60.

          You don’t need the stock market to generate 1.5% annual compound returns anymore.

          1. Thanks for sharing that compound interest calculator. Turning 38 next week and have $500k in a 401k. If I dont put in another penny and get 6% year i’ll have $2.4M by the time I’m 65.

            Of course, i hope to continue to contribute to my 401k over the years, have other savings, understand market returns arent guaranteed and hope to retire (from corporate america) before 65, but its still comforting to know my future potential.

            $2.4M would certainly allow for a moderately comfortable retirement. That said, my goal is $10M

            1. There you go! Thanks for doing the math. With contributions, your 401(k) will grow massive over time.

              It always seems like it’s impossible until you actually get there.

        2. Even if you stop contributing to your 401k it should double about every 10 years if the stock market keeps up its historical average returns. And also, you say you’re married and your wife has another 401k. That balance should count too! And if you have IRAs that were accumulated or rolled from historical 401ks, those balances count too. I bet you are closer to FS’s targets than you think. Not that it matters. :)

        3. Hey Joe,

          It looks like if you stopped contributing today to your 401K, you would only need a 3.5% average yearly return over the next 15 years to hit that $1 million mark. I think your chances are pretty darn good of hitting that :)

    2. Mr. Hobo Millionaire

      Hi Joe.

      If you’re invested in a broad index like VTI (ETF) or VTSAX (mutual fund), your money should roughly double every 10 years (at a minimum). If you’re 45, your 600K alone should double to 2.4M by age 65.

      A lot of people like to doubt the stock market, but history doesn’t lie. The market always goes up over time (10 year windows). If the stock market ever stops recovering and going up, the world is over.

  29. We live in a dream

    The recommendations should in terms of ounces of gold, for that’s the only asset the will compensate for the massive financial asset deflation that’s coming.

    What people don’t realize is what they have in 401ks are claims on wealth, not wealth itself.

    1. And how do you turn that gold into cash? I have tried to sell hold in the form of coins and rings. There are a lot of frsudsters out there. It’s easy to buy but a lot harder to sell it.

    2. The stock market has returned around 8-10% on average for 100+ years, and just because you think it suddenly will stop doing so doesn’t mean that’s true. It’s fine to own gold, but stocks aren’t some pyramid scheme. They represent ownership in REAL BUSINESSES making REAL PROFITS.

      So, if you’re telling my companies like Apple, Duke Energy, Proctor and Gamble, Boeing, are all going to fail and crash? Then I’ll tell you the world has officially ended anyway, so who cares if you own gold or stocks at that point.

  30. Simple Money Man

    Only two weeks worth of savings is insane! And I think a big reason is the lack of basic financial literacy. I know it’s somewhere on your site, but can you please point me to the chart that shows 401k and other investment account balances by age?

  31. Cathy Jones

    I highlighted your paragraph that said if you are 70 and debt free, you could manage the rest of retirement on $200k. My parents (85 and 83 yrs) have been managing their retirement on $100K in sAvings for 20 years. They are out of debt and have travelled the world, bought a few RV’s, all on about $40k a year.
    We have been able to accumulate $700K sAvings. We are out of debt and live simply. Been retired 2 years. If $200K would suffice, we should totally be fine!

    1. Bingo! It is funny to come to the conclusion that $200K in your 70s without debt seems fine.

      But all the other age ranges seem very low.

      So perhaps, everything works out in the end! If not, it’s not yet the end.

  32. The realist

    Expecting young people in their first 3 years of working to be putting $10k per year (lowest tier in the chart) towards retirement is ridiculous. Many new graduates make 35k-45k their first few years. Unless they are able to live with their parents rent free there really isn’t any way to accomplish this. I saved 20% my first few years and I was only able to save 7k per year and I lived quite frugally. Saving 10% is a great place to start, but with student loans (which I didn’t have) not every graduate can even manage that much.

    1. Sure, whatever you think is best for you. That’s the beauty of personal finance. Whatever you choose is the best answer. We are all rational beings who are happy with what we have. If we’re not, we change.

      I have a viewpoint that being average, let alone median is ridiculous with our one and only lives.

      It kinda stunk to live in a studio the first two years out of college, but that was my tradeoff in order to max out my 401(k) with a $40K income in Manhattan.

      Related: For A Better Life, Be The 1% In Something, Anything

    2. Yep, most people unfortunately have this attitude. I can’t, it’s impossible, it’s ridiculous to save that much. Somehow I managed to pay off my student loans and sock away more than Sam’s recommendation. It was actually quite easy, I got my $40,000 a year job out of college but then worked every scrap of overtime while my friends went to happy hour. I lived with 2 roommates while others got cushy 1 bedroom apartments or bought homes. What is ridiculous is looking at people’s budgets that say they can’t possibly do it or it would be too much of sacrifice. This is the exact attitude I’m teaching the young people I encounter in my life to avoid. They ask how I got so damn wealthy, and be able to retire at 43, what advice I have. it’s not to be average or say I can’t.

    3. Hmm. You’d be amazed at what you can do. Last week, I sat down and looked at my contributions through the years, most of them automated so I wouldn’t have to fuss them day in and day out:

      2018: 98k
      2017: 47k
      2016: 22k (bought a new home and rented out my old residence)
      2003: 26k (first FT job after uni)

      Looking at 2019, I’m on track to contribute another 90k. In that calculation includes employer contributions from a savings match and pension.

  33. Curious to get your thoughts on this……a lot of financial advisors suggest you should have retirement savings so that you can have 80% of your income when you retire.

    I struggle with that idea and am curious to get your thoughts. My wife and I max out our 401k and am still able to save a little more on the side (tho with 3 kids under the age of 5 my savings is more of less paused, once we’re no longer paying for childcare it should pick back up), but I cant see how i’ll need 80% of my income when I retire.

    From our combined salaries we put 10% into 401ks, we put 5% into our children’s college funds, we put 12% into a mortgage (which should be paid off by the time we retire. This 12% number does not include taxes) and we put 25% of our salary towards childcare….which will go away but even then i’m sure we will be spending 10% or more of our salary to feed, clothe and support our children. We also waste a lot of money on take out and prepared food since with full time jobs and 3 kids its often hard to cook.

    Of course, medical costs may increase, travel and entertainment may increase and life can throw a wrench at you at anytime. That said, we currently put nearly half our salaries towards things that wont be a factor once we retire.

    Everyone’s situation is different but is 80% really the right benchmark? Or is that just a generalization to ‘scare’ people into signing up for their services as they’ll be made to feel not on track.


    1. I assume 80% of what you will spend your last few years of working. At that point, you should be done with kid costs and have a better idea of what kind of life you will want to live after retirement. Of course this requires you to guess now so you can get close to the correct amount of savings.

      1. I’m similar. I start with what I earn, then subtract what I save. I could also subtract my mortgage, but I want plenty of cushion to save for unexpected, nonrecurring expenses. I’m sure I’ll have to tighten that up before I retire, but it’s comforting to have that as a starting point in my retirement budget.

      1. Far from easy, but hopefully in time it will get easier. The fun parts are wonderful, the stressful parts are awful.

        Glad I have a supportive partner to share this experience with and am fortunate enough to have enough $$ to not have this put us in debt.

    2. Mary Oserhoff

      My husband and I are retired and find ourselves with more income than when we were working. We no longer have house payments, nor need to put away 20% into retirement. Frugal habits die hard, tho. We are currently spending the winter in Costa Rica. Frugally, of course.

    3. I agree with you. I’ve assumed the 80% thing is more a rule of thumb (for marketing to the masses) for a ratio of expenses to income, but I focus much more on absolute expenses than on income.

    4. The 80% rule has a pretty specific derivation, that really doesn’t apply to anyone here, probably:

      First, assume that you spend 100% of your paycheck.

      Now, looking at a typical paycheck, what won’t you have, when you retire?

      You won’t pay FICA
      You won’t save for retirement

      Assuming median wages, FICA is 6.2% + 1.45%, or about 8%
      Your advisor’s assumptions about retirement savings may be: make the match (typically 6 or 7%) or save 10% (which makes about 15% with a match)

      So, about 18%

      These are both pre-tax, so taxes won’t change.

      So, about 20% off, leaving 80% of your income.

      If you’re saving 50% of your income, (or even 20%) this is rubbish; I think that’s why a lot of people have an easier time thinking of the 4% rule as 25x expenses.

  34. Fortunately, I was able to contribute at least 75% of my 401k maximum for my first 3 years of work and now max for the most recent 2 years of work. I don’t see me contributing anything less than the max going forward. I turn 30 in a few weeks’ time and plan to hit the upper end of your brackets (depending on available investment options in 401k accounts) and let compounding returns do my heavy lifting.

    My wife doesn’t have access to a 401k plan through her medical residency so we’ve been sure to max our both of our Roth IRAs as well. We need to explore the possibility of doing a Solo 401(k) for her if her first employer doesn’t have a retirement plan offering for her.

    Time will tell, but in the meantime, we’re contributing the maximum we can to our retirement accounts.

  35. I would guess that older savers, like me, who did have well over a million in my 401k at age 60, also have after tax Roth’s and IRA’s and non-qualified investment accounts that also contain over a million. I can’t imagine many with that kind of financial discipline not having saved much more than the allowable max 401k contribution. The other advantage older investors have is it is highly unlikely their social security will be tampered with to the extent that younger investors will probably suffer. The disadvantage we have is that we are, well, old. Which kinda sucks.

    1. Steveark, I take your point. But just wanted to let you know how I have reframed the ‘aging’ issue. I’m actually happy to be this age! While youthfulness is greatly valued, I see it now as mostly ‘potential’ that most people never realize in their lives.

      I think of all the struggle, fretting and fear in my younger years, having to tolerate bully-bosses, sociopathic colleagues, two 50%+ market declines in the past 20 years, housing market drama, etc. But my life worked out! Yours did, too. Hope that helps in a small way!

    2. Yeah, good to be old or older from a financial security standpoint, but sucks to be old from a life standpoint.

      One of the reasons why I left work at age 34 and said “screw the money” was because I didn’t want to die young and not having fully lived.

    3. You want to know what sucks more? As an older saver, getting to that age with more than 2x the recommended amount, then just prior to retirement having multiple injuries significantly reducing your quality of life. Really sucks, but extremely grateful to have the financial means to live such a reduced quality of life. The alternative without a high FI is unthinkable to me.

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