Have you ever wondered how your 401k balance stacks up against the rest of the population? If you’re a devout saver, you may be surprised to find out just what the current average retirement savings for most Americans actually are.
I first became somewhat curious about my own pace against those of other people after reading the book Your Money Ratios. The book offers you some suggested milestones for where you should be at with your savings given different age levels.
In case you want to know but are too scared to “look under the bed”, your 401k balance is probably doing a lot better this year than you think. Despite some of the choppy financial news for this month, 2013 has been a pretty favorable year overall for the market on average.
The Average Retirement Savings of 401k Plans:
To give you an idea of how your balance may compare to that of your peers, here are a few interesting figures I found in some recent articles. In my opinion I found them to be somewhat low and a little bit alarming.
Here are the average retirement savings for 401k plans as reported by Fidelity for the third quarter of 2013:
- Average balance = $80,600; up 10% from this time last year
- Workers who have had an account 10 years = $211,800; up 19% from this time last year
- Workers age 55 and over who have worked 10 or more years = $255,000
Interestingly enough in a related article on retirement savings, the following 401k balances were reported for employees at these major companies:
- Gap = $15,000
- Google = $70,000
- Southwest (pilots) = $300,000
(I’m going to go out on a limb here and guess that the age demographic probably has something to do with the slant observed in these findings. I would expect most people working at the Gap and Google to be much younger than pilots who have probably worked with Southwest for some time.)
Keep Your Goals In Perspective:
Even though it can be fun and even helpful to compare your 401k balance to the average retirement savings of the general public, I think it’s important to keep one thing in perspective:
How is MY plan going according to MY individual goals?
That is a very important difference.
So what if you have more than $255K like the average 55 year old. That’s not really going to get you very far when you consider that withdrawing 4 percent each year to live upon will only result in $10,200/year or $850/month BEFORE taxes. Does that sound like it’s going to be a very enjoyable retirement budget?
Let me give you a personal example.
At age 33, I too have already surpassed that $255K statistic by just a few thousand dollars. If I plug that number into my handy Excel worksheet and use some modest assumptions and continuing to keep up with my contributions plus my 401k employer match, I can estimate that in about 15 years (2028) my 401k retirement savings should be somewhere near $1,150,000.
You might think that’s a lot of money. And I do agree that sums over one million dollars certainly are. But to simply have a giant retirement savings is not my goal.
My goal is:
- Reach financial freedom as soon as possible.
Therefore the balance of my 401k account simply becomes one component of my overall financial freedom plan.
Because I intend to reach my goal long before age 59-1/2, I’ll need sizeable investments outside my normal retirement savings plans. Even though they may be taxable, the trade-off will be the ability to gain access to them whenever and wherever I want. Plus if you spend just a few minutes understand the basic tax rules, you might actually find some breaks within the system for capital gains and dividends that are pretty favorable as well.
Don’t Fall Under Market Skepticism:
Perhaps the reason that more Americans don’t save above 2% per year for retirement or put more into their 401k savings is because they are still skeptical about the stability and future of our economy.
As one of those people who saw their 401k balance get cut in half during the Recession, I can sympathize with those concerns. That whole experience really taught me some valuable lessons about what the word “risk” really means.
I remember all throughout 2009 every major news media was quick to point out that at its lowest point all the returns from the past 10 years had been wiped out. Their point was that we the investors had made nothing on our average retirement savings over the past decade. Even the book Aftershock painted a pretty gruesome portrait of the upcoming U.S. future.
But history has a way of being cyclical and allowing reversion to the mean to occur. And for that reason I am optimistic about the long term.
A quick check of the S&P 500 10 year history today shows that it is up 62%. Just as the protagonists of financial planning encourage, the average of our financial markets reverts back to a positive long term trend when you give your investments enough time to recover.
The important thing is to plan effectively, diversify your income sources, and build in lots of safety factors. Don’t go for the bare minimums as your target goals. Engineering encourages you to design safety factors into your creations to compensate for such unknowns. Your money design for retirement should follow the same since it will be impossible for you to predict all the uncertainties that could occur.
Your will reach your goals and be able to retire when you want if you allow yourself to and challenge yourself to follow a plan. Don’t join the average retirement savings of your peers. Excel beyond them!
Readers – How do your retirement savings compare to the figures listed above? Do your goals call for some alternative strategies?
Images courtesy of FreeDigitalPhotos.net and MMD