The Average 401k Potential Balance By Age (Part 2)
By Eliseo "Jojo" Prisno, CRPC, MS
Chartered Retirement Planning Counselor
PE CAPITAL INVESTMENTS
(Second of Two Parts)
This article is a continuation from the August issue. If you missed the first part, please visit the magazine’s website www.pinoynewsmagazine.com and click on the business tab. Again, this article appeared a few months ago in personalcapital.com (February 5, 2015 by Financial Samurai) https://blog.personalcapital.com/retirement-planning/average-401k-balance-age/ , a financial planning website. And my reason to share this is to stress further the need to take control of our financial future. Towards our twilight years we are no longer active earners but dependents on a passive income from our retirement nest egg and entitlements. The future of our entitlements is something beyond our control because these monies are subject to political economic policies, however to build a retirement nest egg is something we are empowered on.
LET’S Compare the 401k assumptions to reality
Every source available says that Americans are not saving enough for retirement. Vanguard recently reported the average 401k balance at year end 2013 reached a record high of $101,650. Not bad, but still much lower than my chart’s guidance of $218,000 to $350,000 for the Low and High End for a 35 year old (the average age of an American).
Meanwhile, other reports show the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households. Supposedly two-thirds of working households age 55-64 with at least one earner have retirement savings less than one times their annual income. Given the median household income is roughly $52,000, that’s not a good sign.
Finally, more than 38 million working-age households (45 percent) do not own any retirement account assets, whether in an employer-sponsored 401k type plan or an IRA. Hopefully these households are diligently saving their money in after-tax accounts and not solely depending on Social Security.
Suffice it to say that we’ve got a retirement problem on our hand.
What are the Solutions?
It’s tricky to prescribe blanket solutions given everybody faces different circumstances. But the below solutions should at least help:
1) Start saving early and often. As you can see from the High End column, compounding really does do wonders when there is a positive annual return. Even with no compounding, you will end up with 14X – 63X more than the median household. As soon as you can uncomfortably start maxing out your 401k, go for it. If your monthly savings doesn’t hurt a little bit, you aren’t saving enough.
2) Remind yourself that nobody will save you. If the retirement age for withdrawal is not lifted or the Social Security tax is not raised, Social Security can only pay about 72% of scheduled benefits starting in 2035 through 2087. It’s better to get in the mindset of completely writing off Social Security to motivate yourself to save more for retirement.
3) Ask yourself whether you really want to work forever. Extending work life is one way to solve the retirement gap. But sometimes you might get laid off, or nobody wants to hire you. Do you really want to be beholden to a job for money when you’re over 65 years old? Every single dollar you save now is one dollar you’re saving for retirement.
4) Develop alternative income streams. Besides withdrawing from your retirement funds and collecting Social Security, think about developing other sources of income to support your lifestyle. Other sources of income can be in the form of creating an after tax dividend portfolio, building a CD ladder, or investing in peer-to-peer lending to name a few.
5) Stay on top of your finances. The more you can track your finances, the better you will be able to grow your net worth. The clients who I speak to who need the most help with their finances have never bothered to calculate their net worth or track their cash flow. Practice the habit of knowing exactly how much you have in each account, your average total monthly expenses, and your average total monthly income to start. Sticking to a consistent process over time does wonders.
Now that you’ve seen how much you can potentially save in your lifetime, what’s stopping you?”
Truly smart! For better guidance, I always suggest to get in touch with a professional financial advisor. The future is in your hands, be financially savvy.
ABOUT THE WRITER: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor (CRPC).He founded P/E Capital Investments in 2010, a State Registered Investment Advisory Firm (CRD# 172695) and is currently the firm’s Managing Director and Senior Investment Advisor. Mr. Prisno also manages a Fund of Funds investment program with Ameritas and runs an All-Equity Growth and Income customized portfolios in separate accounts via E*Trade Securities. If you have questions email j.prisno@PEcapitalinvestments.com or call 1-888-929-2825. Visit our website www.PEcapitalinvestments.com