It can be hard to determine just how much of your earnings should be saved for retirement. Some people rely on outside cues, like the level of matching funds from their employer. Others decide on saving a round percentage of their salary, such as 10 percent.
You’re likely wondering if you are saving sufficient funds to enable the lifestyle you wish for your older years. Charlie Bolognino, a certified financial planner working at Side-by-Side Financial Planning, Plymouth, MN, posed this question: “Ultimately, what level of income do you think will need to be replaced on a year-to-year basis, to enable a nice retirement life?”
“Do not forget to budget for daily expenses, yearly health care, as well as recurring costs, including car replacements.” There are certain benchmarks that can help you know if you’re on the road to amassing substantial savings.
Max out your 401(k). One worthy aim would be to max out your 401(k) plan, with the 2018 contribution limit equal to 18,500. Employees aged 50 and above could put in as much as $6,000 in additional catch-up contributions for 2018, for a highest contribution level of $24,500. By fully funding the 401(k), you will gain the highest possible tax deductions for the monies you put away. Any traditional 401(k) contributions you have made will not be subject to tax, until these are withdrawn from your account.
That said, just 13 percent or so of 401(k) participants had maxed out their plans during 2017, based on a new Vanguard analysis of some 1,900 plans representing 4.6 million 401(k) participants. Most workers who do so typically earn above $100,000 annually. They are also more likely to have worked longer and be nearer retirement age.
It’s always easier to put away tidy savings if you’re earning well. Vanguard reports that those who earn at least $100,000 yearly have on average a 401(k) plan balance of $246,171. This is more than double the $108,613 average savings of those earning from $75,000 to $99,999 yearly.
Kayse Kress, a certified financial planner working at More With Less Financial Planning, Bristol, CN, has this advice: “Start small, then raise your annual contributions by 1 or 2 percent, until the plan maximum is reached. Always ensure that you’re contributing enough to take full advantage of any matching contributions arranged by your employer.”
Reach a Million Dollars in 401(k) balances. As 401(k) annual contributions are capped, it can take decades of good investment returns as well as diligent saving to amass bountiful accounts. Fidelity notes that in 2018, some 157,000 people have at least $1 million total in 401(k) balances, based on analyses of around 22,600 workplace retirement accounts comprising some 15.8 million participants. Fidelity estimates that most 401(k) millionaires would have accumulated savings for three decades or more to reach that level..
People who save constantly across the years are frequently able to amass impressive savings. It has been reported that those who have worked for at least a decade would have on average a 401(k) balance of $210,306, almost four times the $52,872 for those who have worked for four to six years at a firm, based on Vanguard data. Fidelity discovered that workers with lengthy careers would have amassed an average savings of $290,100 under their company’s 401(k) after 10 years, and $379,600 for 15 years.
On the other hand, people who frequently change jobs may see smaller balances in their older 401(k) plans. They might also roll their savings into some IRA, so frequent job hoppers would rarely see all their retirement savings in one 401(k) account. Hiatuses in employment, pauses in savings placement, as well as waiting periods prior to joining a new company’s 401(k) plan can all lead to smaller retirement accounts.