How does my 401(k) compare to others? – Here's how to save even more
If you ask any Financial Professional for a list of money no-nos, "keeping up with the Joneses" might just top the list.
That's because treating money management as a competition with your peers is one of the easiest ways to get into financial trouble. A purchase well within a friend's budget could put you in debt. An investment well within their risk tolerance could be entirely inappropriate for yours.
Financial advisors may disagree on how you should allocate your assets, but we all virtually agree on one thing: You need to manage your money based on your own and your family's goals alone.
When you're saving for something that feels like decades away, such as retirement, it's easy to feel like you're not doing enough or falling behind without some context. Even if you're not doing as well as you'd like, you may do better than most.
Among the millions of retirement savers who hold accounts at Fidelity, the median 401(k) balance was $28,900 as of the first quarter of 2024, according to data the brokerage provided. That number may skew a little low since many investors have multiple small accounts from past employers.
The average balance was $125,900, which may skew a little high given that gigantic accounts can pull up the mean, and older savers have had more time for money in their accounts to accumulate than younger investors.
Here's how it breaks down by age.
20s
- Median: $6,700
- Average: $17,700
30s
- Median: $22,100
- Average: $56,200
40s
- Median: $41,600
- Average: $124,400
50s
- Median: $64,300
- Average: $212,400
How to catch up if you're behind
If you have more than the average account holder or the average saver in your age bracket, take a moment to feel good about yourself. But remember, you're running your own race. Depending on how much income you hope your retirement portfolio will generate, you may be ahead or behind schedule.
As a rule of thumb, Fidelity recommends retirement savers have the equivalent of:
- Age 30- 1 years annual salary
- Age 40- 3 years of annual salary
- Age 50- 6 times your salary
- Age 60- 8 times your salary
- Age 67-10 times your salary
Those numbers are potentially scary, but if you're behind, you have time to catch up. Here are three ways financial planners say you can get things back on track — and one tempting strategy to avoid.
Automate your savings
If you've had difficulty stashing away enough money for retirement,one way to make things easier is to put your savings on autopilot.
This can be done by setting up automatic contributions to your retirement accounts from your paycheck or bank account. Automating savings ensures consistency and discipline, making sticking to your retirement savings goals easier.
Escalate your contributions
Once you have your contributions automated, set them to increase by a certain amount or percentage each year. Doing so will allow you to up your savings rate while minimizing the sting of actively putting more money aside.
Setting your contribution to automatically escalate over time can be one of the most effective strategies for boosting retirement savings. This approach ensures that you're consistently increasing your contributions as your income grows, without requiring ongoing manual adjustments.
Take full advantage of a match
If you're not already, be sure to contribute enough to a workplace retirement plan to receive any matching contributions your employer may offer.
If your employer matches you dollar-for-dollar in your 401(k) up to a certain percentage of your salary, everything you contribute up to that threshold theoretically earns a 100% return. It's like receiving an immediate return on your investment; failing to capitalize on this benefit means leaving valuable retirement funds on the table.
Don't take on extra risk
One way to boost the number in your account is to earn higher returns on your investments. Sure, you can expect to earn healthy returns on a well-diversified stock portfolio over the next few decades, but couldn't you earn more betting it all on one hot stock or cryptocurrency?
Maybe — but you also vastly increase the chances of major losses that could permanently cripple your retirement plan.
For more information on optimizing your 401(k) and balancing growth potential with risk management, schedule a call by clicking the link below.