How Much You Should Have in Your 401(k) - By Age

How do you stack up against people your age when it comes to your retirement balance? Today, we're gonna dive into the numbers and we'll also figure out some ways to save for retirement, especially if you're feeling a little bit behind and that way we'll never run out of money when we are retired. And if you're ahead, this video will hopefully be reassuring. So let's actually start with the first age group of 18 to 25 years old. If you're under the age of 25, it's likely that you just started working and have actually established your 401k with your employer. Now the average 401k balance for someone aged 18 to 25 is $6,264 and the median is $1,786 according to Vanguard. Throughout this video, you're gonna see me referencing both averages as well as medians because sometimes average is not a great representation of whatever's going on in your age group because the larger portfolios are gonna skew this number higher. Now the average contribution rate of someone in their 20s to their 401k is about 7% of their gross income. That means every paycheck they're getting, about 7% of it is going towards their retirement balance. That is pretty solid. However, I think if we can aspire to say maybe 15 or 20% of your gross income, if you can establish that habit, you're gonna be light years ahead of other people by the time you're age 30. That might be pretty difficult, but what did those people say? They say, if you shoot for the stars, you might land on the moon and you'll probably subscribe to this channel. So it's kind of like that. Now, by the time you're age 30, Fidelity suggests that you should aim to have about 1.2X of your annual income save for retirement. That means if you make $50,000 a year right now, by the time you're 30, your total retirement balance should be 50,000 times 1.2X or about $60,000 total. The main thing to focus on in this age range is actually just starting a 401k and starting to contribute to it, as well as taking advantage of any perks that the 401k has. If you're from another country, you might not have a 401k, but in Canada, they're known as RRSPs. In Australia, they're called superannuations. And in the UK, they're known as self-invested personal pensions or SIPPs. In any case, wherever you are from, make sure that when you are saving it for retirement, if they offer you any type of perk, you wanna take advantage of that. Employers here in the good old America, USA, will offer you what's called an employer match, especially when it comes to your 401k. Essentially, that just means when you contribute to your 401k, your employer will match that and give you some money to contribute to your 401k as well. Why do they do this though? Mostly because they get tax breaks for doing so. So now you kind of understand why they do it. But all you really need to know is that if your employer ever offers you a 401k match, you wanna take advantage of it because it's essentially free money to you. So here's how it works. Let's say you hypothetically make $100,000 a year and your company offers to match 50% up to 6% of your salary. That phrase means that of your $100,000 salary, 6% of it or $6,000 of any contribution will be matched half. So your employer will contribute an extra $3,000 in addition to your $6,000 that you contribute. That means your total balance saved in that single year would be $9,000, even though you only put in $6,000 of your own money. So while the ages of 18 to 25 are focused on getting started the 25 to 34 age range, which is next, is where things really pick up. The average 401k balance in this group is $37,211 and the median is $14,068. The contribution rate of someone in their early 20s to mid 30s is around 8%. So it's about 1% higher than the previous age group. That's not leaps and bounds higher by any means but at least it's a little bit more. The key thing to focus on in this age group is by the time you're age 40, they actually suggest that you should aim to have about 2.6X income saved. Now, where is Fidelity getting these numbers? 2.6X seems a little bit random, right? Well, since they have so much data on what people spend and save in retirement, they know that the average person will spend about 80% of their pre-annual retirement income in retirement. I made a video where I discussed that a couple of weeks ago. So I'm gonna link that down below for you guys if you wanna check that out after this video. Essentially, Fidelity just has so much data that they know how much people spend and how much people save in retirement. They create some benchmarks against that with simulations and these are the suggested numbers so that you can have a long lasting retirement. So in a case where you make $75,000 a year, if you had 2.6X that saved by the time you're age 40, that would mean you would have a balance of $195,000. If you even stopped contributing altogether to your retirement portfolio at age 40, but you still invested it into the market and average an S&P 500 return of 8% per year, you'd actually have $1.55 million by the time you retire at age 67. According to a recent article by CNBC, Americans expect that they need about $1.3 million to retire comfortably. I did some back of the napkin math the other day and to get a 2.6X amount saved by the time you're age 40, you roughly need to target a 15% savings or contribution rate to your retirement balance. And that's how much you should be aiming to save if you aren't already doing so already. So I think this is a really good time in the video to actually sit down and reflect upon how much we're contributing to retirement and how much we're actually saving for ourselves in the future. So I'm gonna let you guys do that. I'm gonna put five seconds of elevator music on the screen right now and I'm just gonna sit here. All right, so whether it's through a 401k, an IRA, or just a normal investing account, we wanna make sure we're aspiring to more than just the averages according to the data. The goal of today's video is to show you what most people in the United States are doing. So if you aren't in that spot where you wanna be financially, now is the time to really think about how we can start saving more, starting to invest more, and just planning for the future. I think there are two goals in this age range that can really set you up for success. So the number one is going to be systematically investing a percentage of your income as we talked about earlier. At the age of 30, you still have a lot of time on your side. So let's say you could only invest around 5% of your $50,000 income every single year. That means every year you're investing $2,500. Even at $2,500 a year, if you get the average returns of the S&P 500 of 8%, by the time you're age 65, you're still gonna end up with a ending balance close to half a million dollars, which is still a lot better than a lot of the averages that we're gonna share in today's video. And number two, your income should be sustainable, stable, and have opportunities for growth. So I think that if you don't feel like your income is growing, especially in your 30s, that's where you can pursue further education, like getting a certification or perhaps a credential to help you earn more money. Ideally in your 30s, you're getting more experience so that you can leverage those skills into higher pay so that you can put more of that away to retirement so that we are doing better than the averages in the United States. Another way to get ahead is to actually subscribe to this channel. So a lot of you guys, if you subscribe to my channel, you're gonna start seeing me more often on your YouTube homepage, and science has shown that your environment actually influences your habits. So if you subscribe to this channel, not only you're gonna get more videos from me on your homepage, you'll also get recommended other types of investing and savings videos, which if that's not the most compelling subscribe call to action, I don't know what is. Please just do it. All right, by the time you're the ages of 35 to 44, the average and the median 401k balance starts to really get up there. The average at this age range is $97,020, and the median is 36,117. The average contribution rate is still eight to 9%. It's actually closer to 9%, but as you can see, most people, they don't actually increase their savings over time. Let's talk about the amount that you should have saved by the time you are age 50. So now at this point, this is starting to get really serious. You wanna have at least five times your annual income saved by the time you're age 50. You're likely about two decades away from retirement, and you really wanna figure out what your magic number is in order for you to retire comfortably. A good rule of thumb is that you wanna live off of three or 4% a year of your entire retirement balance. I have a video on that. I'll link it down below as well. If you're in your late 30s to early 40s, this is also a really good time to start planning for different types of expenses. So especially an expense like college funds for your kids, or perhaps you wanna pay off your mortgage someday. You wanna figure out what that's gonna look like financially for you. For the most part though, if you're in this age range, you wanna make sure that the fundamentals are covered. So everything we've talked about in this video already should be an autopilot decision for you. You're likely gonna be hyper-focused on growing your family as well as your career, so stay focused on that. And you just want your finances to be set so that you don't really have to think about it too much because in the next age group, that's where it kinda steps up considerably more. By the ages of 45 to 54, the average 401k balance in America is now $179,200, and the median here is $61,530. Here, we can start to see that the average 401k balance starts to get skewed due to larger portfolios in the dataset, so the median is probably more of a better representation of this age group. The average contribution rate of this age range is still between nine and 10%, which is just not getting any higher. Shocking, I know. At this age range, when you're in your 50s, by the time you're age 60, Fidelity suggests that you should have 8.2x your income saved for retirement. I think there are a few big goals in your 50s, especially as we end the decade and we're closer to retirement, and number one is to clear all debts. We wanna make sure we're living a life without debt. That means you wanna pay off your car loans as quickly as possible, any credit card debt, as well as figure out a plan for paying off your mortgage or your house entirely in full. And number two, I think we should be knowing exactly how much we wanna spend in retirement. It's likely that your kids are probably off to college or adults and living their life, spring break or whatever they're doing out there. So at this age, you really just wanna know how much am I spending every single year so that you can plan for a really comfortable retirement. All right, so here's the really shocking part about this next age group of 55 to 64. The average 401k balance is $256,244. The median, $87,725. You are super nearing retirement age, and these are the averages in the United States. If you only had $250,000 to retire at the age of 65, you're basically going to run out of money rather quickly. I know this is kind of a timely, sad, dark humor joke, but 250K is only gonna get you one ticket on that submarine to the Titanic. Sorry, that was bad. You are super nearing retirement age, and the amount that you should have saved by the time you're 65 years old is 10 times your annual salary according to Fidelity. Now, if we're looking at this entire video in the averages, it's really shocking because I don't think that's enough money to retire for anybody. So if you are watching this video and you're in the younger age bracket, it's likely that we should probably be aiming to save more than just 10% because the entire contribution rate of this entire video for every single age group so far has been less than 10% every single year. All right, there is no secret here to personal finance. I wish that there were, but there really isn't. Basically, you make a certain amount of money, you wanna spend a very small percentage of that money, and you wanna save that difference and invest that difference for your future. We wanna be spending properly on the wants and needs that we have, and oftentimes, personal finance is more just like discipline. If we can stay disciplined with our spending, making sure that our budget is not getting out of whack, then we're probably gonna be just fine. All right, guys, I hope that you enjoyed this video. Subscribe. I'll see you guys in the next video. Peace.