The good news for savers who use 401(k) plans and similar workplace retirement accounts is that an improving stock market causes account balances to rise. The average 401(k) has grown by an average of $7,250 – a 9.6% gain – since the end of 2022, according to a Bank of America report.
The report also reveals that 401(k) plan participants contribute an average of 6.5% of their income. Using data from Vanguard, the Bureau of Labor Statistics (BLS), and the contribution rate reported by BofA, SmartAsset calculated exactly where your 401(k) balance might be based on a few different hypothetical ages.
A Financial Advisor can help you plan withdrawals from a retirement account, such as a 401(k). Talk to a financial advisor today.
Account balances on the rise versus more hardship withdrawals
While account balances are on the rise, the number of workers taking hardship withdrawals from 401(k)s increased 36% compared to the second quarter of 2022. This comes as Americans continue to face rising interest rates, as well as housing and food costs which have increased steadily in the context of rising interest rates. recent inflation.
“The data in our report tells two stories: one of balanced growth, the optimism of young employees and the maintenance of contributions, contrasting with a trend of increasing withdrawals from the plans,” said Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America. A press release. “This year, more employees are naturally prioritizing short-term spending over long-term savings. However, it’s critical that employees continue to invest in the company’s biggest expense. life: retirement.”
While the employee contribution rate retirement savings accounts was stable at 6.5% in the first half of the year, most financial experts advise saving 10 to 20% of your overall income for retirement. One strategy is to increase your savings rate by 1% each year, in addition to adding half of any salary increase to retirement savings.
Calculate potential retirement savings by age
With this in mind, how much savings could you have by the time you retire if you contribute 6.5% of your salary each year? SmartAsset looked at four hypothetical savers aged 25, 35, 45 and 55, all contributing 6.5% of the median salary for their age group.
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Age of saver: 25
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Median retirement savings for 25-34 year olds: $11,357
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Median salary: $54,184
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Projected savings at age 65: $1,900,310
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Age of saver: 35
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Median retirement savings for 35-44 year olds: $28,318
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Median salary: $63,908
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Projected savings at age 65: $1,022,366
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Age of saver: 45
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Median retirement savings for 45-54 year olds: $48,301
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Median salary: $64,116
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Projected savings at age 65: $497,607
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Age of saver: 55
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Median retirement savings for 55-64 year olds: $71,168
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Median salary: $61,672
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Projected savings at age 65: $230,481
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These calculations are based on data from the following sources:
As you can see, it is up to you to get started save for retirement as soon as possible, to allow enough time…