Having a 401k account is one of the most powerful retirement assets one can have, but the reality is that most people are not saving enough in it. Far from it. In fact, Americans as a whole are in a lot of trouble. According to the Economic Policy Institute, almost half of us don’t have ANY retirement savings.
With pensions following the Dodo bird into extinction and the future of Social Security up in the air, having enough for the future rests more in our hands.
How Much Should I Have By A Certain Age?
So how much should you have by the time you are 30, 40, or 50? We’re going to base our numbers on a few assumptions:
- You started working full-time after college at 24 years old
- Your family makes $61,372 a year (the median household income)
- You contributed $19,000 a year to your 401k (the maximum IRS limit in 2019)
- Your company 3% of your contributions (the average amount)
- The stock market returns an average of 7% a year
Here’s what that looks like by the time you’re 60:
Holy ninja warrior multi-millionaire! How does $19,000 a year come out to $4,806,643???
It’s a thing called compounding – letting your money make you more money. You leave it alone on autopilot and let it do its job, all while you meditate in your dojo. It adds up – slowly at first, but over time it’s on money-making steroids.
As you can see from the chart below, you’re only investing $875,329 over the entire 36 years. The rest of $4,806,643 comes from stock market gains and the beauty of compounding:
The Bottom Line
The biggest obstacle most of us will face in life is how to manage money correctly.
Psychologically, it’s hard for people to save for a future seemingly so far away when they can use that money for instant pleasure now.
It’s nice to take a vacation to an exotic island or buy that car you’ve been drooling at forever. As a reader of The Money Ninja, I will teach you how to have the best of both worlds.
How are you compared to your age? Is it realistic or are your odds better of being struck by lightning twice?
6 thoughts on “How Much Should You Have in Your 401k?”
I agree with how the calculations are done, but isn’t it too aggressive and unrealistic for most folks? Or am I really behind in my retirement savings?
What if you don’t have a 401K?
You should open up a ROTH IRA or IRA for retirement savings then, or if you have access to an HSA account, use it for retirement savings rather than medical uses. I will write about that soon – stay tuned!
Why wait until you are 24?? You are missing 5 CRITICAL YEARS the first years…
I assume you’re from Bogleheads? Folks there would say you need to invest in yourself during those primitive years 🙂
Your a little too conservative here, you’re forgetting to max the IRA and HSA as well, for both husband and wife, and then put $20K in after tax savings annually after that.