It’s never too late to start saving for retirement. Even if you’re just starting out, there are plenty of 401k plans available that can help you save for the future.
A 401(k) is a type of retirement account that’s provided through your employer and uses pre-tax money to help you save up for your non-working years. Because most employers automatically enroll employees in a certain 401(k) plan and contributions can be automatically deducted from their paychecks, those who participate can avoid much of the hassle of saving for retirement.
The process raises two important questions: Firstly, how much money should someone have in their 401(k) for retirement and secondly, how much money do people who are preparing to retire actually have in their 401(k) accounts?
While the answer to the first question has a lot to do with when you plan to retire and the type of lifestyle you want to have when that happens, there are a few guidelines you can follow no matter where you are in your retirement savings process to help get you there — Select recently covered how much money you should have saved at every age if you want to fully explore that topic.
As for the second question, Select used information from Vanguard’s 2021 How America Saves Survey to dig deeper into what the average American retiree’s 401(k) balance looks like. According to the survey, participants reported the following amounts:
- Average 401(k) balance of ages 45–54: $161,079 (average); $56,722 (median)
- Average 401(k) balance of ages 55–64: $232,379 (average); $84,714 (median)
- Average 401(k) balance of ages 65 and older: $255,151 (average); $82,297 (median)
While it can feel nice to have an idea of how much other people have stashed away, keep in mind that personal retirement savings goals can differ based on the type of lifestyle you want to enjoy during retirement. If you plan to travel regularly and make expensive purchases you may not have made when you were younger, for instance, you’re going to need to have a considerable amount of money saved up. If you hope to have a less expensive lifestyle, stay close to family and pick up a few new hobbies, you can probably get away with having a smaller balance.
How to start saving for retirement
One of the best ways to start saving for retirement is to make sure you’re enrolled in your employer’s 401(k) plan. You can decide what percentage of each paycheck you’d like to defer into this account and some companies will even match all or a portion of what you contribute so you grow your balance even faster. Pay extra close attention to the terms required for matching, though, as some employers have a minimum percentage amount that is required. For example, if your employer matches contributions of at least 3%, you’ll need to contribute at least 3% of each paycheck to your 401(k) in order to receive the match.
401(k) accounts also come with annual maximum contribution limits that change slightly each year — for 2022, you’re allowed to contribute up to $20,500. Keep in mind, however, that it can be very difficult to max out your account. If you’re not able to hit the $20,500 mark, make sure you’re at least contributing enough to receive your employer’s match.
Another way to make sure you’re growing your retirement savings is to contribute to a Roth IRA, a powerful tool you can use when it comes to saving for retirement since you can contribute after-tax money that gets invested and grows over time. When you withdraw the money at retirement — anytime after age 59 1/2 — you won’t have to worry about paying any taxes on it either.
The sooner you can open up a Roth IRA, the better, because your money will have more time to compound. If you were to open a Roth IRA today by investing $100 and contributing just $3,000 each year — assuming an 8% annual return — in 30 years, you’d have accumulated $340,856. However, if you were to follow the same steps and only give your money 20 years to grow, you’d end up with just $137,752. That 10-year difference can wind up costing you more than $200,000 so it’s better to do it sooner than later.
Similar to a 401(k) account, a Roth IRA also has an annual contribution limit, except it’s much lower at $6,000 — this limit is also use-it-or-lose-it, so if you contribute less than $6,000 one year, the remaining limit won’t roll over to the following year. This is yet another reason why it’s important to start contributing to a Roth IRA as early as possible.
There are lots of Roth IRA providers out there. If you want a hands-off approach, look into one such as Betterment or Wealthfront, since their robo-advisors can pick the portfolio that’s right for you and automatically adjust your allocation based on your needs and risk tolerance.
Another way to save for your IRA is in precious metals, check out our list of trusted gold IRA companies.
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