The average American worker begins thinking about retirement within the first five minutes of punching into their first job. Perhaps that fact is a bit embellished, but why else do we work unless it’s to eventually arrive to that glorious day when we won’t have to work? As for real facts, around 4 million people retire each year.
Between now and 2034, upwards of 80 million people may retire their business suits and/or toolboxes — they’ve reached the proverbial golden years. Are they financially ready for retirement? The answer to that question could be found in a 401K account.
The 411 of a 401K
The 401K is a retirement savings plan that is available to workers. With a 401K plan, you’ll have money deducted from your paycheck before taxes are taken out. It lowers your taxable income, so you could end up saving on your taxes. Because taxes are involved, the government sets limits on how much you can contribute. Some exceptionally cool companies match your contributions — call it bonus bucks.
The 401K plan is strictly a voluntary program. You can keep your paycheck just the way it is, and keep all that cash. That might work if you’re in your 20s and not thinking about retirement — but as you will see with the following numbers, putting off making 401K contributions might not be a smart move. When you retire, you don’t get a paycheck — so you need to think about your future.
A report by Vanguard’s How America Saves 2016 found that the average balance for a 401K account last year was hovering around $96,288. It sounds like a lot of money until you go back to 2014 when the average balance was $102,682. The lower number is due to participate rates. Most workers opt for a 3% contribution — that minimum amount won’t add up, but workers seem to prefer not having more withheld from their paychecks. Perhaps at those levels of deductions, you don’t notice you’re missing money from your paycheck.
The Bigger the Paycheck, the Bigger the Balance
It should come as no surprise that the more money you earn, the more you are inclined to put money aside in a 401K plan. Once you reach the six-figure salary territory, the 401K balance blasts off. With salaries over $100,000, the 401K balance reaches $203,656. Keep in mind that those balance numbers happen after several years of dedicated contributions.
Who Saves More? Men or Women?
If you were to make an educated guess as to who saves more in their 401K, men or women, which would you pick? Spoiler Alert: It’s women. For a woman earning between $50K and $75K, they will contribute 7.1%. On the male side, the guys only save 6.6%. Sadly, the actual balances for men are higher than women. How can that be? Two words: Income inequality. The numbers don’t lie.
A 401K account with 100K to 200K is definitely a decent nest egg. However, if that is all you have saved up for the 30 years of your retirement, you could be in trouble. That is why many folks also look to plan for their retirement outside of a 401K. An active investment portfolio can provide additional retirement savings and might be able to set up a steady revenue stream of dependable dividend payments. It all comes down to diversification and proper planning. Let’s go back to the first question in this post: Are you financially ready for retirement? Start saving today.