The Average 401(k) Balance Of Americans In Their 40s

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

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

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

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

Keep in mind that personal retirement savings goals can differ based on the type of lifestyle you want to enjoy during retirement. So if your ideal retirement lifestyle is less expensive compared to someone else’s it’s okay to not save up as much as they do.

How to figure out how much money you need to save for retirement

Knowing how much money you’ll need to have saved up before you enter retirement can help give you an idea of ​​how much you should be putting away right now in order to reach that goal.

Figuring out how much money you need to save before you can retire starts with estimating how much money you’re likely to spend each year in retirement. You should account for expenses like housing, health insurance, food, medication, travel and pet care, to name a few.

Next, you should consider approximately how much of that money you’ll be receiving through federal benefits like Social Security. The Social Security Administration has an online benefits calculator that lets you estimate how much you might receive in social security based on your current income and when you hope to retire. Keep in mind that this is only an approximation and not an exact number; still, though, it can be helpful to look at such an estimation. Once you figure out how much you might receive each year in federal benefits, you can subtract that from the total amount you expect to spend each year in retirement. You’ll be left with the amount of money you’ll need out-of-pocket each year to sustain yourself.

Now that you know how much out-of-pocket money you will need to come out of your retirement savings each year, you can use the 4% rule to figure out the total amount you’ll need to have saved up before you enter retirement .

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

Just take the amount you need to spend yourself each year in retirement and divide it by 0.04 (or multiply it by 25). The result represents how much you’ll need to have saved up before you enter retirement to sustain 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, though, that if you withdraw more each year you’ll likely need to have more money saved up to pull from. 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 are receiving the full match amount. For example, if your employer matches contributions of at least 4%, you’ll 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 retirement. You can actually stash away an additional $6,000 a year by opening up a traditional IRA or Roth IRA.

A Roth IRA is a powerful tool you can use when it comes to saving for retirement since you can contribute after-tax money that gets invested, grows tax-free over time and can be withdrawn without paying taxes. 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 just $3,000 each year — assuming an 8% annual return — in 30 years, you’d have accumulated $340,856. However, if you were to follow the same steps and only give your money 20 years to grow, you’d end up with just $137,752. That 10-year difference can wind up costing you more than $200,000 so it’s better to do it sooner than later.

There are lots of Roth IRA providers out there. If you want a hands-off approach, look into one such as Betterment or Wealthfront, since they’re robo-advisors can pick the portfolio that’s right for you and automatically adjust your allocation based on your needs and risk tolerance.

Wealthfront

On Wealthfront’s secure site

  • Minimum deposit and balance

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

  • Fees

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

  • Bonus

  • Investment vehicles

  • Investment options

    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 college planning, retirement and homebuying

Betterment

On Betterment’s secure site

  • Minimum deposit and balance

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

  • Fees

    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 a 0.40% annual fee

  • Bonus

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

  • Investment vehicles

  • Investment options

    Stocks, bonds, ETFs and cash

  • Educational resources

    Betterment RetireGuide™ helps users plan for retirement

If you’d rather be more involved in the investments you choose, opt for a brokerage such as Fidelity or Charles Schwab, which would allow you to pick your own investments or start a conversation with an advisor about your goals and the types of assets you ‘re interested in.

Fidelity Investments

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go account, but minimum $10 balance for robo-advisor to start investing. Minimum $25,000 balance for Fidelity Personalized Planning & Advice

  • Fees

    Fees may vary depending on the investment vehicle selected. Zero commission fees for stocks, ETFs, options trades 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 (after, $3 per month for balances between $10,000 and $49,999; 0.35% for balances over $50,000). Fidelity Personalized Planning & Advice has a 0.50% advisory fee

  • Bonus

  • Investment vehicles

    Robo-advisor: Fidelity Go® and Fidelity® Personalized Planning & Advice IRAs: Fidelity Investments Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®

  • Investment options

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

  • Educational resources

    Extensive tools and industry-leading, in-depth research from 20-plus independent providers

Charles Schwab

  • Minimum deposit and balance

    Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit

  • Fees

    Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract

  • Bonus

  • Investment vehicles

    Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRAs: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account

  • Investment options

    Stocks, bonds, mutual funds, CDs and ETFs

  • Educational resources

    Extensive retirement planning tools

Editorial Notes: Opinions, analyzes, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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