How Much Do I Need in My 401(k) to Retire?

If you’re in your 20s, 30s, or even 40s, retirement may seem far away, and you probably have so many other things that are more immediate to spend your money on. You’ll get to it … at some point.

By the time you reach your 50s, retirement isn’t that far away, but if you haven’t saved, you may think it’s too late to start on a 401(k) now.

The reality is, it’s never too early to start planning for your retirement.

And it’s also never too late.

The average American spends roughly 20 years retired, but half of working Americans have not calculated how much they need to save for it, according to the U.S. Census Bureau.

Once you’ve retired, you should prepare to spend 55%-80% of what you earned a year. Your savings strategy should focus on that reality.

Some industry experts say the magic savings number for retirement is 10 times your annual salary by the time you’re 67. Another strategy is to save 10%-15% of your pre-tax salary throughout your career.

Everyone’s financial situation is different, so the amount they need to save in their 401(k) is, too.

“How much you need in a 401k depends heavily on what you are trying to accomplish in your retirement,” Steven Gilbert, founder of Gilbert Wealth LLC, said. “If you desire to spend $80,000 per year from your 401(k), you’ll need a much larger balance than someone who plans to spend only $15,000 per year.”

Lifestyle, financial and personal obligations, your assets and more, all determine how much you’ll need in a 401k account at retirement.

One thing that’s true for everyone is that you will still need an income once you’re no longer working. If you are overwhelmed with debt or financial obligations and don’t think you can save for retirement, you still have options.

How Much Money Should I Have in my 401(k)

The average 401(k) investor had $103,900 saved by the end of 2022, according to Fidelity investments. Vanguard, a global investment advisor, calculated the average at $141,542.

Whether you’re at zero or well above those averages, the most important number is the one that works for your financial situation.

If your employer offers a 401(k) plan, that is one of the easiest ways to save for retirement. They are also the most popular, with 34.6% of Americans who are saving for retirement putting their money into a 401(k), according to the U.S. Census Bureau.

The money comes out of your paycheck before you even see it or have a chance to spend it on something else. Many employers match contributions, up to a specified limit. Government and nonprofit employees have a 403(b) option, which operates the same way as a 401(k).

The IRS limits how much money you can contribute to a 401(k) every year, since the money is not taxed. The maximum contribution allowed in 2023 was $22,500. People who are 50-and-over may also contribute a “catch-up” amount of up to $7,500 a year.

Contributing the maximum amount every year is ideal. Long-term gains are the goal, and investors shouldn’t stress too much about the ups and downs of the markets.

Both Fidelity and Vanguard’s recent analysis show that Americans increase the amount they put into a 401(k) as they age and get more concerned about their retirement years. Investment trends also determine the average for each age group. The longer someone has been contributing to an account, the more gains they make, and the balance increases exponentially.

“Year-over-year, the trends are consistent – if you start saving earlier and avoid reacting to market volatility, you will be better off in the long run,” Joanna Rotenberg, president of personal investing at Fidelity said in a news release about their analysis. “[The analysis shows that] younger generations are sticking to their plans and working on building good savings habits – from budgeting daily expenses and automatically increasing contributions to taking advantage of an employer match. This is especially important during periods of inflation when the money you’re accumulating needs to go further.”

An average is determined by dividing the number of investors by the amount invested. Median means that half of investors have a higher amount and half lower.

Average is usually a higher number, because a few investors have very large accounts, Vanguard said of its report. The median overall investment total in Vanguard’s analysis is $35,345, while the average is $141,542.

For a clearer picture, 3 in 10 participants had a 2021 account balance of less than $10,000; 3 in 10 had more than $100,000; 15% percent of participants had a balance of $250,000 or more, Vanguard found.

In Your 20s

Gen Z investors (those born after 1997) increased how much they contribute to their retirement savings by 14% between 2021 and 2023. Some 84% in this age group have their money in a target-date fund, according to the Census. A target-date fund is geared toward investments with higher risk but potentially greater return for younger investors, and then gets more conservative as investors age. The percentage of Gen Z workers who have retirement savings is 7.7%, but the number increases sharply as they near 30, according to the Census. Fidelity recommends that someone should have the equivalent of one year’s salary saved in a retirement plan by age 30.

• Average amount saved: $6,264
• Median among saved: $1,786
• Average yearly percentage of salary contributed: 10.2%

In Your 30s

Millennials (1981-1996), have a lot of expenses that can compete with retirement savings – kids, mortgages, car loans, etc. – yet 49.5% have retirement savings. Those with accounts also contribute a greater percentage of income than younger workers. Fidelity found that the number of millennials opening retirement accounts has increased in recent years, particularly among women. Fidelity recommends that by age 40, an investor should have three times their annual salary saved for retirement.

• Average amount saved: $37,211
• Median amount saved: $14,268
• Average yearly percentage of salary contributed: 12.6%

In Your 40s

People at the older end of the millennial generation and the younger end of Gen X (1965-1982) are still feeling the pressures of raising kids and sending them to college, paying a mortgage, and more. They are also contributing a higher amount to 401(k)s as the concept of retirement, and how they’ll pay the bills once they’re not working, becomes more of a reality. Some 56.1% of Gen X workers contribute to a retirement account. Fidelity suggests by 50, you have six times your salary in a retirement account.

• Average amount saved: $97,020
• Median amount saved: $36,117
• Average yearly percentage of salary contributed: 14.6%

In Your 50s

Once you hit age 50, you can increase the amount you put into a 401(k). In 2023, the contribution limit is $22,500, but those over 50 can add up to $7,500 in “catchup money” for a total of $30,000. This decade includes older Gen Xers, who may be at the peak of their earning power, and younger Boomers (1946-1964), who are beginning to think seriously about retirement. Some 58.1% of Boomers have retirement savings. By age 60 you should have eight times your salary saved for retirement, Fidelity suggests.

• Average amount saved: $179,200
• Median amount saved: $61,530
• Average yearly percentage of salary contributed: 15%

In Your 60s and Above

By age 67, which is the official retirement age for Social Security purposes for anyone born after 1959, you should have 10 times your salary saved. Of the 47.3 million retired workers in 2022, 65% received reduced Social Security benefits because they took them before full retirement age, with the average monthly benefit overall $1,658. Social Security is only designed to be a part of retirement income, so retirement savings are crucial.

• Average amount saved: $268,120
• Median amount saved: $88,720
• Average yearly rate: 16.5%

» Learn More: Retirement Checklist

Average Retirement Savings by Age

Vanguard studied 5 million investors to come up with figures that show average and median retirement savings.

» Learn More: Average Retirement Savings by Age

How to Save for Retirement

A little bit can add up when saving for retirement. The goal is the long haul, and the amount saved increases exponentially. In other words, the bigger the balance, the faster it grows. That’s why starting early is important.

For instance, say you saved $6,000 a year, with a 7% return. After 35 years, when you were ready to retire, you’d have $829,421 saved.

You would have $34,504 after five years, $150,774 after 15 years, $379,494 after 25 years and $829,421 after 35 years.

Everyone will tell you that the best strategy is to set retirement savings goals as soon as you begin working full-time as an adult, then stick to them. But that is easier said than done. Even those who set a goal may struggle to meet it. In the wake of the COVID-19 pandemic, consumers are still battling inflation, supply-chain issues, job changes and more that make it hard to save. Skyrocketing college tuition, home and car prices, along with rising interest rates make just getting by harder for a lot of people. The thought of maintaining savings, or having a percentage taken from a paycheck, may not seem possible. This is particularly true for younger adults who see retirement as something far in the future, and saving for it isn’t a priority.

But having no plan or goals can come back to bite you when it matters.

“If you haven’t prioritized savings, there can come a point in time when you may not have saved enough and no amount of savings short of windfalls will get you to where you hope to be,” Gilbert, the financial advisor, said. “In this situation, you will need to re-evaluate what you want the future to look like and what goals you want to prioritize. This is why it’s important to begin financial planning early so you can get the big decisions right.”

All is not lost, though, if you start later. “A diligent savings plan can accomplish a lot in a short amount of time,” Gilbert said.

He said there are ways to work savings in for those who don’t think it’s possible. “If you’ve squeezed out everything you can from your income, one of the best ways to put away money for retirement is to commit to increasing your savings in the future. Two great ways of doing this are by enrolling in an auto increase program to systematically increase your savings rate, and by saving some or all of any future bonus you might receive.”

He added that most working Americans have a secret savings weapon. “Many people receive a tax refund, but do not consider that part of the regular savings strategy,” Gilbert said. “However, if you haven’t optimized your tax withholdings and receive larger tax refunds each year, this can be a great way to boost your retirement savings.”

Some tips to help save for retirement:

• Create a budget. Keep track of your monthly income and expenses, and include retirement savings in the “necessary” expenses category.
• Develop a plan. Figure out what you will need to live on in retirement, what assets you will have, and when you can retire.
• Maximize contributions to your workplace retirement plan. Be sure to at least invest enough to trigger an employer match, and enroll in the auto increase option.
• If you still have a lot of working years ahead of you, consider finding a union or government job that comes with a pension. Jobs with pensions usually also have 401(k) opportunities, though may not have an employer match. Government and nonprofit jobs have 403(b) programs, which are similar to 401(k). They too, may additionally have a pension plan.
• Open an IRA. You can have more than one retirement account. In 2023, the IRA contribution limit was $6,500, $7,500 for those over 50.
• Invest early. You are never too young to begin investing. Make it a habit. The earlier you start saving, the more you’ll have for retirement.
• Understand investment. Learn about how your retirement plan and other investments work and how to diversify for the best return.
• Invest your tax refund into a retirement savings account.
• Consider your plan’s fees and whether they affect your savings. If they do affect them, find a better plan.
• Learn how Social Security and Medicare work. The impact of the two government programs on your retirement income can determine how much you need to save. Estimate your Social Security benefits using the tool on the Social Security Administration’s website.
• Consult a financial planner. Look for a fiduciary, which means they are required to act in your best interest, rather than sell a product.
• Consult a counselor from a nonprofit credit counseling agency. A credit counselor can help you understand your finances, create a budget, and eliminate debt.
• Keep credit card debt low and maintain a good credit score. This will allow you to borrow for a mortgage, auto loan and get other credit at lower interest with better terms.

Withdrawing Money from Your 401(k) Savings

While it may be tempting to withdraw from your 401(k) savings in an emergency, or when you need to pay for a big-ticket item, don’t do it. Taking money from your retirement savings will hurt your long-term financial outlook. A 401(k) loan may seem like a good option when you need quick money, since you’ll be paying yourself back, but in the meantime, you decrease the capital and slow the growth of the account. A 401(k) withdrawal is even more financially damaging. If you are younger than 59 and a half, you’ll pay penalties and taxes on what you withdraw as well as lower your retirement income. Bite the bullet and allow your 401(k) to grow, so you won’t have financial hardships after you retire.

How Much You Need to Save for Retirement

The amount of retirement savings a person needs depends on the individual and their financial circumstances, and it can vary greatly. “What is important is a comprehensive view of your income and financial resources to ensure you have met your needs in the future,” Gilbert said.

Retirees spend between 55% to 80% of what they earned annually while working. Health care costs, housing, and lifestyle all play into how much you will need in your 401(k) in order to retire.

Life may end up throwing you some curveballs that can change the picture, but the more planning and research you do early on, the more equipped you’ll be to handle whatever comes your way.

Factors to consider include:

• Where you want to retire. Do you plan to stay in your home, or downsize? Will you move from your snowy state to Arizona or Florida? Will you move somewhere more expensive, or somewhere cheaper?
• When you want to retire. The age you are when you retire has an impact on your health care costs, whether you can collect Social Security, and more.
• Do you plan to work part-time? You may want to work, or you may have to work. Consider the options and how much it will contribute to your income.
• The lifestyle you want. Do you see a retirement full of travel? Or do you plan to live a simple life gardening or relaxing? The more expensive the lifestyle, the more money you’ll need.
• Your assets and other benefits. Do you plan to sell your house and reap the equity? Do you have other retirement accounts? How much will you get in Social Security? Do you have a pension?
• Your family. Do you have aging parents or a family member with a disability who will need care? Grandchildren to help support? Do you have a spouse whose retirement plans will affect yours? Family situations can have a major impact on your expenses after retirement.

» Learn More: How Much to Save for Retirement

Prepare for Your Retirement

If you have a lot of debt, or have scrambled to make a living most of your life and are nearing retirement with no savings, there are still ways to have solid financial footing in your later years.

It’s never too early – or too late – to plan for retirement. You may simply need the financial education tools to understand how to best go about it, or you may need guidance to eliminate credit card debt or find ways to lower expenses.

InCharge Debt Solutions can help you eliminate debt, build your financial education, create a budget, access resources that can help your finances and more. A consultation with a counselor at InCharge, which is a nonprofit credit counseling agency, is free and may be the boost you need to start saving.

Older workers, and even retirees, will benefit from talking to a credit counselor at InCharge. The counselor will discuss debt relief for seniors options, which can lead to a more financially comfortable retirement.

If you’ve worked hard all your life, no matter what your financial situation, you deserve to relax and enjoy retirement. Understanding your financial situation, savings options, and what role your 401(k) will play is key to a lifetime of financial security.