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  • Writer's pictureCaroline Brie

401k Savings By Age: How Much Should You Save For Retirement

The 401k is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute is $19,500 for 2020. Let’s go through how much 401k savings by age you should to live a comfortable retirement.

Although the 401k pales in comparison to a nicely funded pension, even more disappointing than thee 401k is the IRA. With the IRA retirement plan, you can only contribute $6,000 in pre-tax dollars. Further, you can only contribute if you make under $72,000 a year as an individual and $119,000 as a married couple. What about the rest of us?

Meanwhile, you have to make less than $139,000 a year as a single person or $206,000 as a married couple for the privilege of contributing the maximum $6,000 in after- tax dollars to a Roth IRA. I do not recommend doing this before maxing out your 401k.

Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401k or IRA any time! At least with the 401k, anybody can contribute.

Average Retirement Balances

Based on Fidelity’s 2Q2020 study, here are the average retirement balances for the IRA, 401(k), and 403(b).

  • The average IRA balance was $111,500, a 13% increase from last quarter and slightly higher than the average balance of $110,400 a year ago.

  • The average 401(k) balance increased to $104,400 in Q2, a 14% increase from Q1 but down 2% from a year ago.

  • Average 403(b) account balance increased to $91,100, an increase of 17% from last quarter and up 3% from a year ago.

401k Savings By Age: How Much You Should Have

The assumptions for the below chart are as follows:

  • Low End column accounts for lower maximum contribution amounts available to savers above 45.

  • Mid End column accounts for lower maximum contribution amounts available to savers below 45.

  • High End column accounts for savers who are under the age of 25. After the first year, one maximizes their contribution every year to their 401k plan without failure.

  • Average starting working age is 22. But you can follow the number of years working as a different guideline if you graduate later or earlier.

  • $18,000 is used as the conservative base case maximum contribution amount for one’s entire working life.

  • No after-tax income contribution, although more power to you if you have the disposable income to do so.

  • The rate of return assumptions are between 0% – 10%.

  • Company match assumption is between 0% – 100% of employee contribution. $57,000 a year is the total amount that can be contributed to a 401k by employee ($19,500) and employer for 2020 (employer can contribute $37,500).

  • The Low, Mid, and High columns should successfully encapsulate about 80% of all 401K contributors who max out their contributions each year. There will be those with less, and those which much greater balances thanks to higher returns.

  • You are logical and not a knucklehead. Just by searching this topic, you are taking ownership of your retirement and are thinking ahead with an action plan.

From the results, we can see that even after 38 years of consistent saving, you’ll only have around $1,000,000 to $5,000,000 in your 401k in a realistic cycle of bull and bear markets.

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

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

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