How does your 401k balance compare?

Do you often wonder if you have more saved for retirement than your friends or neighbors? While it is really more important to know that you are on the right retirement path based on your own needs, everyone also wants to know where they are compared to their peers. At Wiser, we help you determine how much you should be saving so you will be secure in retirement, but let’s look at the latest results of national data on 401k plan balances.

First, the good news is that American’s 401k plan balances are up, thanks to a combination of asset performance and increased contributions.  According to Fidelity Investments, the average 401k plan balance reached $106,000 in second quarter this year – a 2% increase from $104,000 in Q2 2018.

How does that break down by age group?

Age 20–29

Average 401(k) balance: $11,800

Median 401(k) balance: $4,300

Contribution rate (% of income): 7%

Age 30–39

Average 401(k) balance: $42,400

Median 401(k) balance: $16,500

Contribution rate (% of income): 7.8%

Among millennials (which Fidelity defines as those born between 1981–1997), 38% of workers increased their savings in Q2 2019. This generation is the most likely to contribute to a Roth 401(k), too.

Age 40–49

Average 401(k) balance: $102,700

Median 401(k) balance: $36,000

Contribution rate (% of income): 8.5%

The jump in the account balance size for Gen Xers could reflect the fact that these folks have logged a good decade or two in the workforce, and have been contributing to plans that long. The slightly larger contribution rate may reflect that many are in their peak earning years.

Age 50–59

Average 401(k) balance: $174,100

Median 401(k) balance: $60,900

Contribution rate (% of income): 10.1%

The jump in the contribution rate for this group suggests that many are taking advantage of the catch-up provision for 401(k)s, which allows them to deposit several thousand more (an extra $6,000 in 2019, $6,500 in 2020) than the standard amount.

Age 60–69

Average 401(k) balance: $195,500

Median 401(k) balance: $62,000

Contribution rate (% of income): 11.2%

It’s now or never for this group. The fact that the contribution rate is as high as it is suggests that many baby boomers are continuing to work during this decade of their lives.

What should you aim for?  By the time you are 30, Fidelity suggests you have saved half of your annual salary.  By age 40, you should have twice your annual salary.  By age 50, four times your salary; by age 60, six times and by age 67, eight times.  For example, if you reach 67 years old and are earning $75,000 per year, you should have $600,000 saved. These rules of thumb are more like just looking at a tire to see if it is properly inflated. The best way is to actually check the tire pressure and compare it to the car manufacture standards.

The bottom line is that most Americans don’t have nearly enough savings to sustain them through retirement.  That’s where we come in.  We are happy to meet and begin a financial planning journey with you. We can help you understand how Social Security and Medicare work, and what you might expect from them in terms of savings and benefits. Then, we help you determine how much you will need to live comfortably in retirement. Based on that, we arrive at a savings goal and develop a plan to get to the sum you need by the time you need it.

Schedule a call today to learn how we can help you retire comfortably.

Posted February 3, 2020