The Average 401k Potential Balance By Age
By Eliseo "Jojo" Prisno, CRPC, MS
Chartered Retirement Planning Counselor
PE CAPITAL INVESTMENTS
Note: This article will be the first of a two-part series.
I’d like to share this article which I came across a few months back from personalcapital.com, a financial planning website. What’s quite interesting are the numbers and how most of our current earners are missing the mark. In fact, of the Filipino-American workers (the majority in the medical field) I surveyed, none, again “none or zero” out of the 25 randomly asked was inline or at least at par with the chart below based on age and their current actual savings. The ages of the 25 surveyed ranges from 28 to 53 and all were full time workers.
I’m sharing this because it is an eye opener on how we tend to undermine our future.
The following are excerpts and the related chart by Financial Samurai, Sam “The Average 401k Balance By Age” Feb 5, 2015 in Financial Planning, Retirement Planning https://blog.personalcapital.com/retirement-planning/average-401k-balance-age/ :
“The 401k does a woeful job in replacing a pension. Furthermore, only about 31% of the labor force participates in a 401k due to lack of access or a lack of foresight. But we must make do with what we have, which is why we’ve provided some 401k savings guidelines in order to motivate you to save more for retirement.
Above is a 401k retirement savings chart that first appeared in the post, “Can I Contribute To A 401k And An IRA“. Before I explain the assumptions behind the chart, please take a look to see whether you think the amounts are too high or too low and why. There should be plenty of opinions because everybody has different life circumstances. The initial feedback is negative for folks up to age 35, and much more agreeable for folks over 35.
The chart assumes a number of things:
* The chart is more forward-looking instead of backward-looking since 401k contribution limits were lower in the past.
* You start full-time employment at age 22 after college or vocational school.
* You join a company that provides a 401k.
* You contribute $8,000 to your 401k after the first year.
* From the second year onward you contribute the maximum amount to your 401k of $17,500.
* The Low End column calculates what you could potentially have in your 401k after so many years with a constant $17,500 a year contribution, zero company match, and no growth.
* The High End column calculates similar levels of contributions, but includes anywhere from 5-10% growth compounded over the next 43 years. Numbers have been rounded up to make the numbers easier to remember. There still is no company match.
* The chart can be used as a guide for your total savings amounts, including your IRA, Roth IRA, and after-tax savings.
* The chart is for one person, but can also be used as a guide for a married couple if one spouse decides to no longer work.
* There is no average by age because the largest 401k administrators generally only throw out what number: the average 401k balance across all their user accounts. My chart is the suggested balances by age for a healthy retirement not dependent on others.
Let’s Discuss the 401k Assumptions
Based on my chart, we can make an assumption that the majority of us will all retire as millionaires by the age of 65. This might sound absurd given less than 3% of the American population are millionaires. But we are different from the rest of the country because we’re reading an article on 401k savings and we likely leverage technology to manage our finances – Personal Capital being the most obvious choice.
If you are 22 years old and reading this post today, the numbers shouldn’t look too daunting because a million dollars in 43 years will probably have one third the purchasing power as it has today thanks to inflation. The biggest challenge of a 22 year old is to not develop wanderlust too early and maintain discipline in saving as aggressively and consistently as possible.
If you are a 50 year old reading this post today, then your support for my 401k savings assumptions will depend on whether you are within the Low / High range or whether you are below the Low range. If you are below the Low range, then it is likely you think the chart is unobtainable for most Americans. Valid excuses such as going to graduate school, being unemployed for a year, not finding a job with a 401k plan, paying for your child’s college tuition, and medical emergencies all serve to disrupt the assumptions in this chart.
Life happens to us all. But if you are to be completely honest with yourself, you know you could have probably saved more if you absolutely had to.
Finally, let’s assume you are 65 years old and no longer want to save. You realize the median life expectancy is 80 years old for men and 82 years old for women. It’s time to start spending your money because you don’t want your reckless kids to spend your fortune! There’s a good chance you won’t even live until 80 because you’ve spent a lifetime eating bacon and not working out thanks to your job. But to be conservative, take the Low and High amounts in the chart, divide the number by 17 and you get $43,705 – $205,800 a year to spend for the rest of your life.
If you add on the maximum Social Security benefits one can take for the year of $31,704, you’re living a pretty good life with $75,409 – $237,504 a year. The numbers are aggressive because maximum contribution amounts were lower in the past. But humor me anyway as this is just an exercise of what could be. Remember, I haven’t included any company match or growth over the years so hopefully that will appease any naysayer.”
Please follow the second part of this feature on next month’s issue.
About the writer: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor and for over a decade has managed the wealth of select families and business owners. He founded P/E Capital Investments in 2010, a State Registered Investment Advisory Firm (CRD# 172695) and is the current Managing Director and Senior Investment Advisor of the firm. Mr. Prisno also manages a Fund of Funds Portfolio with Ameritas and runs an All Equity Growth and Income Portfolio in Separate Accounts via E-Trade Financial. If you have questions or desire a complimentary analysis of your retirement readiness, call toll free to 1-888-929-2825 or visit our page on facebook or our website: www.PEcapitalinvestments.com
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