A 401k account is the most widely used form of retirement investing. Although very few people have enough saved for retirement, understanding how much one needs to save is a crucial step!
Let’s take some time today to figure out exactly how much you should have saved in your 401k depending on your age. If you are on track, then keep it up! You can only go up from here!
If you realize that you are lagging behind, don’t sweat it! This is more of a guideline to motivate you and have a target to work with. You can always make adjustments to your finances so you can reach these numbers and retire comfortably.
- What is a 401k?
- Why should I use it?
- What if my employer doesn’t offer a 401k?
- How much should you have in your 401k at 20?
- How much should you have in your 401k at 30?
- How much should you have in your 401k at 40?
- How much should you have in your 401k at 50?
- How much should you have in your 401k at 60?
- How to manage your wealth
What is a 401k?
Let’s start with the basics. A 401k is an employer-sponsored retirement account that allows you to invest your pre-tax earnings. The money you contribute to a 401k grows over time and you begin withdrawing it at the age of 59 1/2.
One of its best features is getting an employer match. What this means is, depending on your employer, they might match your contributions up to a certain percentage.
For example, if you contribute 5% of your gross income, your employer may match 100% of those contributions up to 3%. This is what they call in the finance world “free money“.
Never give up free money! Get 401k matching!Tweet
Here is the Golden Rule when it comes to 401k investing. No matter what, always contribute enough to get the company match. For many, retirement might seem like a long ways away, but it’s closer than you think. Future you will thank you for doing this.
Why should I use it?
If your employer offers a 401K retirement plan, then it’s absolutely in your best interest to invest in your future. Investing in a 401k is extremely simple and comes with awesome benefits:
- Contributions are automatically taken from your paycheck, so it’s easy to set it and forget it
- You are taxed less now because your contributions are pre-tax. This might actually end up putting you in a lower tax bracket
- If your employer offers matching contributions, that’s free money! As you contribute to it, your employer will contribute to your retirement too!
- You are protecting your future older self! Retirement is usually the last thing on everyone’s mind, but it shouldn’t be, and it’s so incredibly important!
What if my employer doesn’t offer a 401k?
If your employer doesn’t offer a 401k or any sort of retirement account, all hope is not lost. There are ways you can still save for retirement.
Firstly, consider opening a pre-tax IRA retirement account. In 2018, you could contribute up to $5,500 in a traditional pre-tax IRA, and up to $6,500 if you are 50 years or older. If you are playing catch-up, you could always aim to contribute the maximum allowed.
Alternatively, you could also open a Roth IRA retirement account. With this type of account, your contributions are post-tax. The advantage of this type of retirement account is that your money grows tax-free. When You Reach retirement age of 59 and a half, you won’t pay taxes on your withdrawals.
If you’re trying to figure out where you can open these types of accounts, Betterment allows you to do just that. I personally use this online brokerage service for not only my savings but my other investment accounts. Super easy to use and will work great for your retirement goals. Definitely check it out.
How much should you have in your 401k at 20?
At this early in your adult life, chances are you most likely won’t have any retirement savings. This is okay. If you have just graduated from college, or just got your first job, then enough time hasn’t passed to save up anything significant.
For the average 20-year-old, chances are you might have some student loan debt and credit card debt. This is the time to focus on paying off those expensive items.
Services like Credible can help you refinance your high-interest student loans and pay off your debt much faster. Although you should be focusing on paying off all your debts, you should still always contribute enough to get a company match if it’s offered.
Remember, getting a 401k company match is free money. No matter what stage of life you are in, this is money you can’t afford to pass up. So make sure you make all the right financial decisions early on in your life to build a solid foundation for your future.
How much should you have in your 401k at 30?
A decade has passed and now you’re in your thirties. At this stage in life, you are probably well under way in your career. By 30, you should have completed some important benchmarks.
For starters, you are most likely earning more than you were in your twenties. If not, then it’s super important that you increase that income. You can do so by changing jobs, getting better qualifications, or even earning passive income.
Statistically you are also most likely about to start a family or buying your home. This is where are you start making very significant financial purchases. At the same time, you should also have paid off all your personal debt (or at least the majority of it).
Assuming that you have been working since you were about 20 or 22 years old, you should have about one year’s salary by the age of 30 in your 401k. So if you are earning $45,000 a year, then your 401K should have close to $45,000.
Don’t worry, if you haven’t saved nearly as much as this, you still have time. Just make sure you start to double up on your contributions and making them consistently.
How much should you have in your 401k at 40?
This is the midlife point for most people reading this. Being that power life expectancy averages around 85, 40 is a nice round number.
At this point in your life you most likely have a nicer house, probably nicer things, and a family. All your personal debt should most certainly be paid off by this point. Your income should also be higher than what you are earning while you were in your 30s.
By the age of 40, you should have about three years’ worth of salary saved up in your 401k. So if you’re earning $75,000 a year at this point, you should have close to $225,000 saved up in your 401k.
Again, don’t freak out if you don’t have anything close to this, But if not, this is definitely the time to buckle down and seriously play catch up. Really work on eliminating all your personal debt and increasing your income.
How much should you have in your 401k at 50?
By the age of 50, you have an average of 15 years left until you most likely retire. Some people retire earlier (55), and some people retire much later, but we will aim for 65 for this example.
At age 50, your 401k contribution limits increase from $18,500 a year to $24,500 a year. You are now in the home stretch. Definitely work on contributing up to the maximum that you can in your 401k.
At 50 years old, you should have close to 5 years’ worth of salary in your 401k. If your annual income is about $85,000 a year, then you should have saved approximately $425,000 in your 401k.
If you still have a mortgage, then make sure you also aggressively start paying that off. You don’t want to retire and still have a mortgage payment. This will eat into your retirement income and make it that much tighter.
At this point, you also most likely need to have some kind of passive income stream. This might be things like rental properties, high yield dividend stocks, or some kind of passive income. This will definitely come in handy when retirement comes.
How much should you have in your 401k at 60?
By the tender age of 60, you hopefully are pretty set financially to retire. Statistically, your Peak earning potential it’s between your 40s and late 50s. Your income at this stage will likely decrease, but that’s okay because you have your Healthy retirement savings 🙂
By the age of 60, you should aim to have had between $700,000 to 1 million dollars saved up in your retirement account. The more the better! This will all depend on how early you started, how well your Investments grew over the years, and how much your employer contributed in company matching.
Since you are so close to retirement, it’s probably a good idea to move away from any risky Investments. You will most likely move most your Investments to bonds instead of stocks for example. You don’t want the stock market to take a downturn only a couple of years before you retire. You need to start protecting your investments.
How to manage your wealth
I highly recommend that you sign up for Personal Capital. This free wealth management tool helps you get a better understanding of your personal finances, Investments, spending, and retirement planning. It’s without a doubt the number one tool for anyone that wants to better manage their finances and manage their wealth.
Once you sign in and link all your accounts, you can use their free Retirement Planning Tool. It takes a look at your current Investments, when you plan to retire, and perform simulations on whether or not you’ll reach your goal. It also gives amazing recommendations what you can do with your investment so you can reach your retirement goal.
Remember this, “what gets measured gets improved,” so if you keep track of your net worth, it can only go up. I have used Personal Capital myself for the last five years, and there’s seriously nothing better out there! Definitely recommend you check it out 🙂
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