Emergency savings accounts and traditional savings aren’t the only ways one can save and plan for the future. In fact, many retirement accounts like 401Ks and IRAs are also a very popular way to save. A 401K can be a great way to plan for retirement but how much money should you stash away in the account? What is the average 401K balance by age and how much should you have to retire?
What is the Average 401K Balance in the U.S.?
In 2014 the average 401K balance in the U.S. reached an all-time high ($91,300). This was up more than 30 percent from $69,100 in 2011. So, people are saving more. Not many people are “on track” for a comfy retirement though.
What is the Average 401K Balance By Age?
When it comes to finance it is usually not a good idea to compare yourself to others, however, statistics regarding saving and the average 401K balance are interesting to look at and can provide a good gauge of where you should be with your retirement savings plan. So, if you are trying to gauge where you 401K balance should be, here are the “recommended” average balances by age:
- By age 30 you should have half of your annual salary saved for retirement.
- At age 40 you should have double your annual salary saved.
- By the time you are 50 you should have four times your salary saved.
- At age 60 it is recommended that you have six times your annual salary saved for retirement.
- By age 67 you should have eight times your salary saved ($600,000 with an annual salary of $75,000).
Looking at the average 401K balance in the U.S. it seems that Americans aren’t saving nearly enough for retirement. When people are cashing out their 401Ks to retire with only about $170,000 (a fraction of recommended goals). Part of this is because of trying economic times in recent years and another part is from people simply not opening accounts or saving.
How to Start a 401K
If you want to begin saving for retirement but don’t have the cash to open an IRA, a 401K is a great way to go. Most of the time you can get a 401K retirement plan through your employer. Each paycheck you receive will have regular taxes removed as well as your contribution to your 401K. Some employers even match a percentage of your contribution (multiplying the amount you’re able to save over time).
Self-employed individuals or individuals whose employers do not offer a 401K can open a retirement savings account through their bank. Similar to a 401K, you can set up an automatic deposit into the account with each paycheck you receive. Before opening a retirement savings account be sure to do some research on which accounts will provide the best return.
Catching up on Savings
Some people are probably reading this panicking because they don’t have enough cash saved for retirement. There are still many ways for you to save a substantial amount of money for retirement.
If you’re trying to catch up on savings you can start adding extra cash to your retirement fund regularly. For instance, you can increase the percentage of your check that you contribute or you can add the “extra” money you have leftover after each check to savings. Whatever the case may be, it is never too late to start saving!
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Photo: Tax Credits