The average 401(k) balance of Americans in their 40s

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If you have a 401(k) account, you are already taking a very important step in retirement savings. This type of account is provided by your employer and uses pre-tax money to help you save for the years you won’t be working. Most employees are automatically enrolled in an account by their employer, and they can choose the amount of each paycheck they wish to deposit into the account. The automatic nature of these savings helps you build up your balance without having to lift a finger.

The older you get, the higher your balance should be (unless at some point you made a difficult withdrawal from your 401(k) account).

Select information used from Vanguard’s How America Saves Survey 2021 to get an overview of how much money the average American in their 40s has saved in their 401(k) account. Here are the numbers that were reported:

  • Average 401(k) balance for ages 35-44: $86,582 (average); $32,664 (median)
  • Average 401(k) balance for ages 45-54: $161,079 (average); $56,722 (median)
  • Average 401(k) balance of 55–64 years old: $232,379 (average); $84,714 (median)

Keep in mind that personal retirement savings goals may differ depending on the type of lifestyle you want to adopt in retirement. So if your ideal retirement lifestyle is less expensive than someone else’s, there’s no harm in not saving as much as they do.

How to determine how much money you need to save for your retirement

Knowing how much money you will need to have saved before you retire can give you an idea of ​​how much you should be saving right now to reach that goal.

Determining how much money you need to save before retirement starts with estimating how much money you’re likely to spend each year in retirement. You need to consider expenses such as housing, health insurance, food, medication, travel, and pet care, to name a few.

Next, you need to consider approximately how much of that money you will receive through federal benefits such as Social Security. The Social Security Administration has an online benefit calculator that lets you estimate how much you could receive from Social Security based on your current earnings and when you hope to retire. Keep in mind that this is only an approximation and not an exact number; however, it may be useful to review such an estimate. Once you’ve figured out how much you could receive each year in federal benefits, you can subtract it from the total amount you plan to spend each year in retirement. You will be left with the amount of money you will need each year to support yourself.

Now that you know how much money you’ll need to shell out of your retirement savings each year, you can use the 4% rule to determine the total amount you’ll need to have saved before you retire. .

The 4% rule states that you should be able to live comfortably on 4% of your money in investments in your first year of retirement, then increase or decrease that amount slightly to account for inflation each year thereafter. Based on historical data, living with only 4% allow you to use your retirement portfolio to cover your expenses for 30 years.

Simply take the amount you need to spend each year in retirement and divide it by 0.04 (or multiply it by 25). The result represents the amount you will need to have saved before you retire to support yourself for about 30 years. It’s important to note that you don’t have to withdraw 4% of your money — you can withdraw more or less depending on your personal needs. Keep in mind, however, that if you withdraw more each year, you’ll likely need to have more money set aside to withdraw from it. But if you withdraw less than 4%, you can get away with saving a little less and your money may even last you longer.

How to start saving for retirement

One of the best ways to start saving for retirement is to make sure you’re enrolled in your employer’s 401(k) plan and receive the full matching amount. For example, if your employer matches contributions of at least 4%, you will need to contribute at least 4% of each paycheck to your 401(k) in order to receive the match.

You can contribute up to $20,500 to your 401(k) account for 2022 (the contribution limit adjusts each year). But that doesn’t mean you can only save $20,500 a year for your retirement. You can actually save an additional $6,000 per year by opening a traditional IRA or a Roth IRA.

A Roth IRA is a powerful tool you can use when it comes to saving for retirement because you can contribute after-tax money that’s invested, grows tax-sheltered over time. time and can be withdrawn without paying tax. The longer your time horizon, the more your money can grow.

If you were to open a Roth IRA today by investing $100 and contributing only $3,000 each year — assuming an 8% annual return — over 30 years, you would have accumulated $340,856. However, if you were to follow the same steps and only give your money 20 years to grow, you would end up with just $137,752. That 10 year difference can end up costing you over $200,000, so it’s better to do it sooner rather than later.

There are many Roth IRA providers. If you want a hands-off approach, look for one such as Betterment or Wealthfront, as these are robo-advisors that can choose the right portfolio for you and automatically adjust your allocation based on your needs and risk tolerance.

wealth front

On the Wealthfront secure site

  • Minimum deposit and balance

    Deposit and minimum balance requirements may vary depending on the investment vehicle selected. $500 minimum deposit for investment accounts

  • Costs

    Fees may vary depending on the investment vehicle selected. Zero account, transfer, trading or commission fees (fund ratios may apply). Wealthfront’s annual management advisory fee is 0.25% of your account balance

  • Prime

  • Investment vehicles

  • Investment opportunities

    Stocks, bonds, ETFs and cash. Additional asset classes to your portfolio include real estate, natural resources and dividend stocks

  • Educational resources

    Offers free financial planning for planning college, retirement and buying a home

Improvement

On Betterment’s secure site

  • Minimum deposit and balance

    Deposit and minimum balance requirements may vary depending on the investment vehicle selected. For Betterment Digital Investing, minimum balance of 0 USD; Premium investment requires a minimum balance of $100,000

  • Costs

    Fees may vary depending on the investment vehicle selected. For Betterment Digital Investing, 0.25% of your fund balance as an annual account fee; Premium Investing has an annual fee of 0.40%

  • Prime

    Up to one year of free management service with qualifying deposit within 45 days of signup. Valid only for new individual investment accounts with Betterment LLC

  • Investment vehicles

  • Investment opportunities

    Stocks, bonds, ETFs and cash

  • Educational resources

    Betterment RetireGuide™ helps users plan for retirement

If you prefer to be more involved in the investments you choose, opt for a brokerage like Fidelity or Charles Schwab, which will allow you to choose your own investments or start a conversation with an advisor about your goals and types of investments. assets that you are interested in.

Loyalty investments

  • Minimum deposit and balance

    Deposit and minimum balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go account, but a minimum balance of $10 for the robo-advisor to start investing. Minimum balance of $25,000 for personalized planning and advice from Fidelity

  • Costs

    Fees may vary depending on the investment vehicle selected. No commission fees for trades in stocks, ETFs, options and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go is free for balances under $10,000 (afterwards, $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000). Fidelity’s personalized planning and advice has a 0.50% advisory fee.

  • Prime

  • Investment vehicles

    Robo-advisor: Fidelity Go® and Fidelity® Personalized planning and advice IRA: Fidelity Investments Traditional IRAs, Roths and Rollovers Brokerage and negotiation: Fidelity investment trading Other: Fidelity Investments 529 Education savings; Loyalty HSA®

  • Investment opportunities

    Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares

  • Educational resources

    Comprehensive tools and industry-leading in-depth research from over 20 independent vendors

Charles Schwab

  • Minimum deposit and balance

    Deposit and minimum balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing via Schwab One® Brokerage account. Automated investing with Schwab smart portfolios® requires a minimum deposit of $5,000

  • Costs

    Fees may vary depending on the investment vehicle selected. Schwab a® The brokerage account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for 4,000+ mutual funds, and $0.65 fees by option contract

  • Prime

  • Investment vehicles

    Robo-advisor: Schwab Smart Wallets® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Legacy and Custodial IRAs; plus, a Personal Choice Retirement Account® (ECRP) Brokerage and negotiation: Schwab a® Brokerage account, brokerage account + specialized platforms and support for trading, Schwab Global Account™ and Schwab Organization Account

  • Investment opportunities

    Stocks, bonds, mutual funds, CDs and ETFs

  • Educational resources

    Complete retirement planning tools

Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.


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