The good news for retirement savers who use 401(k) plans and similar retirement accounts in the workplace is that an improving stock market is increasing account balances. The average 401(k) has increased by an average of $7,250 — an increase of 9.6% — since the end of 2022. According to a Bank of America report.
The report also found 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 BofA’s Reported Contribution Rate, SmartAsset calculated where your 401(k) balance could stand based on a few different default ages.
a financial consultant They can help you plan for withdrawals from a retirement account, such as a 401(k). Speak with a financial advisor today.
Higher account balances versus more difficult withdrawals
While account balances rise, the number of workers taking hard withdrawals from their 401(k) increased 36% compared to the second quarter of 2022. This comes as Americans continue to grapple with rising interest rates, as well as housing and food costs that have risen steadily amid inflation. the last one.
“The data in our report tells two stories — one of balance growth, optimism from younger employees and preservation of contributions, contrasted with a trend of increased withdrawals from plans,” said Lorna Sabia, president of retirement and personal wealth solutions at Bank of America. press release. “This year, more employees are prioritizing short-term expenses over long-term saving. However, it is critical that employees continue to invest in life’s biggest expense – retirement.”
While the rate of employee contributions in retirement savings accounts The interest rate was steady at 6.5% for the first half of the year, and most financial experts recommend saving 10% to 20% of your total earnings for retirement. One strategy is to increase your savings rate by 1% each year, as well as add 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 of retirement if you contributed 6.5% of your salary each year? SmartAsset examined four hypothetical savers aged 25, 35, 45 and 55, all of whom contribute 6.5% of the average salary in their age group.
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Omar Al-Hafiz: 25
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Average retirement savings for ages 25-34: $11,357
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salary average: $54,184
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Expected savings at age 65: 1,900,310 dollars
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Omar Al-Hafiz: 35
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Average retirement savings for ages 35-44: $28,318
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salary average: 63,908 dollars
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Expected savings at age 65: $1,022,366
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Omar Al-Hafiz: 45
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Average retirement savings for ages 45-54: $48,301
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salary average: $64,116
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Expected savings at age 65: $497,607
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Omar Al-Hafiz: 55
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Average retirement savings for ages 55-64: $71,168
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average salary: $61,672
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Expected savings at age 65: $230,481
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These calculations are based on data from the following sources:
As you can see, this is where you should start Saving for retirement As soon as possible, in order to allow sufficient time to Compound interest to do its job. A 25-year-old, starting with median retirement savings ($11,357) for people ages 25-34, can retire with more than $1.9 million just by saving 6.5% of their salary over their career. But a savings rate of 6.5% is not viable for a 45-year-old who will have less than $500,000 by retirement age. The savings rate is even less effective for a 55-year-old who will retire with only $230,000.
Outlook for retirement savers
Not surprisingly, younger workers who start saving early in adulthood can build a big egg, thanks to the effects of compounding earnings over time. In fact, financial planners stress that saving early can help investors overcome financial setbacks later in life because of the compounding effects over time.
Another point to note is that workers who are automatically enrolled in their employer’s 401(k) program should make an effort to look at their investment options and ensure that they increase their savings rate. Most auto-enrolment plans start out at 3% earnings or less, and usually invest money in very safe, low-yield investments that likely won’t turn a big profit over time. You may also want to make sure you take advantage of any of them 401(k) matching. Your employer offers.
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Too many Americans face retirement without being adequately prepared to provide for themselves for up to 30 years after leaving the job. Reviewing your options and handling your money, savings, and investments increases the likelihood that you will be ready for retirement. A recent study by Bank of America and SmartAsset accounts highlights how important it is to start your retirement savings journey as early as possible.
Retirement saving tips
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One way to get help planning for retirement is to do so Work with a financial advisor. Finding a financial advisor is not difficult. Free SmartAsset tool It matches you with up to three vetted financial advisors who serve your area, and you can place free introductory calls with your matching advisors to select the one you feel is a good fit for you. If you are ready to find a counselor who can help you achieve your financial goals, let’s start.
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Check SmartAsset 401(k) calculator To see how your income, employer matches, taxes, and other factors will affect how your 401(k) grows over time.
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the post Here’s How Much Americans’ 401(k) Balances Will Grow In 2023. Are Your Balances Keeping Up? appeared first on SmartReads by SmartAsset.
