Author Topic: 401K balance vs age  (Read 4331 times)

SnackDog

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401K balance vs age
« on: December 09, 2016, 05:31:48 AM »
My 401K just hit a milestone and I was wondering how that compares to average. Investopedia has an article on this and quotes Fidelity as suggesting the following:

- balance equal to half salary at age 30
- balance = salary at 40
- balance = 4x salary at  50
- balance = 6x salary at 60
- balance = 8x salary at 67

The 401k is about on track for me according to their guidance.  I guess that means I have saved the expected amount in the 401K and it has had average performance.  I've just always maxed it out, gotten a company match and invested normally.   The thing is, 401K savings are capped while salary can soar, so I don't expect a correlation between 401K and salary.  I also think Fidelity may have been specifying total savings, not just 401K.  Our savings is 15x gross income and net worth is 20x  gross income.

For other "normal" savers who have worked 15+ years and saved in a 401K, how are you doing?  Some guy on Bogleheads has worked like 20 years and has like $3MM in his 401K, partly through generous company matching.  I think he must have also had some unicorn stock in his 401K.

plog

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Re: 401K balance vs age
« Reply #1 on: December 09, 2016, 07:00:07 AM »
Salary to 401k ratio is a poor metric for the reasons you identified and another--when I change jobs my 401k money gets transferred to my IRA.  So with 3 years at my current job I am right at 1x salary.  Net wealth to salary is  a different story (approaching 10x).  Of course the real metric, as thoroughly discussed on this site, is annual expenses to net wealth.  Focus on that one.   

neo von retorch

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Re: 401K balance vs age
« Reply #2 on: December 09, 2016, 07:13:49 AM »
Like plog, I roll over past 401ks to an IRA when I change jobs. I personally have about 10-15% more in my retirement funds than my current 1-year salary (at age 37) but would expect to hit close to 2x by age 40. However, my wife started saving for retirement later, so combined we are under 1x in retirement funds for our combined salaries. (If you include taxable investments, we exceed 1x, though.)

Dezrah

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Re: 401K balance vs age
« Reply #3 on: December 09, 2016, 07:56:38 AM »
Fidelity has actually updated those numbers.  https://www.fidelity.com/viewpoints/retirement/how-much-money-do-i-need-to-retire

It's now closer to this:

Age - Salary Factor
30 - 1x
40 - 3x
50 - 6x
60 - 8x
67 - 10x

I like to use these milestones as my "worst case" scenario.  If I had a difficult choice along the lines of supporting a dependent parent or saving for my retirement, I'd be willing to give up my retirement contributions as long as my projections continued to meet these goals.

Interestingly, meeting those early goals is actually pretty challenging, but if you can, the later goals are cake.

SnackDog

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Re: 401K balance vs age
« Reply #4 on: December 09, 2016, 08:15:47 AM »
Assuming retirement at age 67 requires 10x salary, the greater retirement period with earlier retirement suggests larger savings, e.g. to retire at 45 instead of 67, perhaps:

30 - 3x
40 - 10x
45 - 15x

neo von retorch

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Re: 401K balance vs age
« Reply #5 on: December 09, 2016, 08:26:55 AM »
Sort of - but all of these rules of thumb completely ignore expenses, which is much more relevant.

25x.

You want 25 x annual expenses at retirement age, whether it's 45 or 67 (unless you can count on SS and discount that from your needs :).)

Saskatchewstachian

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Re: 401K balance vs age
« Reply #6 on: December 09, 2016, 08:42:04 AM »
My 401K just hit a milestone and I was wondering how that compares to average. Investopedia has an article on this and quotes Fidelity as suggesting the following:

- balance equal to half salary at age 30
- balance = salary at 40
- balance = 4x salary at  50
- balance = 6x salary at 60
- balance = 8x salary at 67


Personally I like the milestones set out by "The Millionaire Next Door" in defining an under accumulator of wealth (UAW) vs a prodigious accumulator of wealth (PAW) which gives a formula of age*salary/10= net worth. If you are a PAW you would have twice that number given by the formula. I like this as it is based on significant reasearch by the authors instead of a financial institution.

I'm guessing that since this is MMM a large number of posters here would be classified as PAW's.

EDIT: Forgot to post my own numbers!

Although I'm not a PAW, our balance (liquid investments) is 2X yearly salary, so by the Fidelity numbers I'd be on plan if I was 45. 20 years ahead of schedule woo hoo!
« Last Edit: December 09, 2016, 08:44:51 AM by Saskatchewstachian »

Slee_stack

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Re: 401K balance vs age
« Reply #7 on: December 09, 2016, 10:01:54 AM »
Guess I'm a PAW.  But if I quit my job and took one paying half the salary, suddenly I'd be a super PAW.  That doesn't make any sense.

bridget

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Re: 401K balance vs age
« Reply #8 on: December 09, 2016, 10:14:43 AM »
Guess I'm a PAW.  But if I quit my job and took one paying half the salary, suddenly I'd be a super PAW.  That doesn't make any sense.

Yeah, my salary has varied widely from year to year. The year I was a state employee making $45k I was a super PAW; as a federal employee making $95k I was just regular, and since my salary jumped to $235k this fall when I went to big law, I'm suddenly a huge failure, despite saving more in absolute dollars than ever before.

ETA: I'm also suddenly "behind" according to the Fidelity recommendations as well, to bring it back to the OP. Point being, salary is a weird thing to pin metrics to.
« Last Edit: December 09, 2016, 10:16:19 AM by bridget »

catccc

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Re: 401K balance vs age
« Reply #9 on: December 09, 2016, 07:36:43 PM »
Like everyone else here, I also think that Salary as a basis for a metric doesn't make sense in a lot of ways.  But on the other hand, you can't expect someone that makes $30K a year to have the same benchmark as someone who makes $100K a year.  So it's just a better gauge than nothing but age, right?

If you kind of want to see where your NW stands, a site like networthshare.com might be of use.  You can browse people's net worth by age, income, line of work, etc.  I think most of the NWs there are above average as you are comparing your NW to a bunch of people that care to track their net worth.  But it's still a fun site and I like to use it to get a snapshot of my NW monthly.  Yes, I also use aggregator sites like personal capital, but there's something reassuring about the habit of updating it manually every month and putting in my little comment...

Shwaa

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Re: 401K balance vs age
« Reply #10 on: December 09, 2016, 09:40:55 PM »
I have never seen an Age vs. Retirement $ saved chart that low before.  The lowest I have seen (which I have seen in a few places) is:

35 = 1x
40 = 2x
45 = 3x
50 = 5x

2Birds1Stone

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Re: 401K balance vs age
« Reply #11 on: December 10, 2016, 08:10:25 AM »
These rules are pretty stupid.

My 401k balance is only .3X my 2016 gross earnings.

My income happened to triple over the past 2 years.

That same 401k balance is also equal to 2 years of living expenses.

If we go by balance vs income it looks like I haven't saved much, if we go by balance vs. expenses I'm doing quite well for my age.

SnackDog

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Re: 401K balance vs age
« Reply #12 on: December 10, 2016, 02:06:57 PM »
So I did a calculation.  I have invested in the same 401K for 20 years.  I googled the max 401k allowed the last 20 years and put that in a spreadsheet since I think I have always saved the max allowed.  Then I assumed a 100% company match, which may be right or might be a bit high.  Then I looked up the annual S&P 500 return and Bond indices for the same time period.  The result is about the same whether I use 100% stocks or 70/30 stock/bond mix.  And, shazam, it matches my current balance.  A 20-year annualized return of 7%.  Given how good markets have been recently, this reinforces the idea of a long term return of 5.5% or so.