Are You Saving Enough For Retirement In Your 401k? Probably Not!!

by Hank Coleman

The dangers of 401k loansAre you saving enough for retirement? How much is enough? Is there really such a thing as saving enough for retirement? While there are a few rules of thumb that you can look at to find out how much money you need to save in your 401k for retirement, the sad fact of the matter is that we are simply not saving enough for retirement.

We Are Not Saving Enough For Retirement

Earlier this month, Fidelity Investments released its quarterly analysis of the 401k retirement plans that it manages. The report showed that the average retirement investor at Fidelity had an average 401k balance of $77,300 at the end of 2012. This is up 12% from 2011 if you count employer matching contributions. The problem is that this increase is simply not enough. The balances for most 401k retirement plans are far too low for the investors’ ages.

Sam at Financial Samurai wrote an excellent article explaining why the median 401k balance is dangerously low. He has found that life always seems to come along and knock people off of their retirement savings plan that they have set for themselves or have had a financial planner establish. That would not be too bad because we all know that Murphy is out there just waiting. But, we have compounded our problems by not saving enough for retirement in our 401k retirement plans like Fidelity and Sam have found.

So, How Much Are We Really Saving?

According to the Fidelity report, here are the average 401k retirement plan account balances broken down by age group at the end of last year. Ages 50 to 54 had an average 401k account balance of $111,900. Ages 55 to 59 investors had $134,600. Those ages 60 to 64 had saved $133,100 in their 401k plans. And those investors who were 65 to 69 years-old only had $136,800 in their 401k plans.

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These amounts are obviously not enough to retire on. For example, a typical annuity of $250,000 earning a 5% rate of return for a 20 year payout will only produce about $1,600 of income per month. Even if you were to earn $2,000 from Social Security and/or a pension, you would still struggle to maintain the same standard of living that you have grown accustom to during your working years with only $250,000 saved for retirement. And, the savings are far lower according to Fidelity as we’ve seen.

According to the 2012 Annual National Survey Assessing Household Savings produced by the America Saves organization and the American Savings Education Council:

  • 66% of Americans spend less than their income and save the difference
  • Only 66% of Americans have sufficient emergency savings to pay for unexpected expenses
  • Only 42% of Americans say they have a savings plan with specific goals
  • 52% of non-retired Americans think they are saving enough for a retirement

Rules Of Thumb – How Much To Save In Your 401k

So, we know that we are not saving enough money for retirement. How much do we need to save? Many financial experts recommend saving 10% – 15% of your income each year for retirement. Other financial planners use a rule a thumb that says you need 20 times your current income as a nest egg goal to save for retirement. These numbers have a lot of assumptions and math behind them as well as simulations trying to consider the likelihood that you will run out of money before you die.

Save 10% – 15% Of Your Income For Retirement

The Total Money Makeover by Dave Ramsey10% is a great, memorable savings goal, and that is why it is often chosen as a starting point for financial planners and their clients. Dave Ramsey recommends people save 15% of their income in his book, The Total Money Makeover. There are many advantages and disadvantages to having a set percentage of your income as your retirement savings goal. With a set percentage, your savings will increase as you earn promotions and raises. But, the percentage method will not take into account an increase in expenses when you are young and have things like education, mortgages, and the like to take care of. It also does not take into account later in life when you have more disposable income to attack your savings.

Save 20x Your Income For Your Retirement Nest Egg

So, for example, if you earn $50,000 per year, the rule of thumb would suggest that you should aim to save at least $1 million by the time you retire in order to replace enough of that income during your golden years. Of course, these numbers change with your assumptions as to the rate of return your investments will earn throughout your life and the rate of inflation. There is also an assumption that you will withdrawal your investment in retirement at a sustainable rate. Many financial experts use the 3% to 4% rate of withdrawal in retirement as another rule of thumb to live by.

I have always been fascinated by the ING “Your Number” campaign. Do you remember those television commercials that were all over the airwaves just a year or two ago? While there are some strong assumptions that go into the calculation of the number, I always think that it is an interesting place to start if you’ve never done the calculation. Please keep in mind that ING is very conservative with their assumptions, and your number may be a just a little high.

How Social Security And Pensions Factor In

The average monthly Social Security benefit for a retired worker was about $1,230 at the beginning of 2012 according to the Social Security Administration. This amount changes every month based on the amount that you have paid into the system and the number of people receiving benefits. I do not even think that you should factor in Social Security benefits to your retirement planning if you are currently in your 20s or 30s. Will their be some type of benefits when this age groups retire? Probably, but they won’t be as generous as they are right now. So, the hits just keep on rolling. And, we are not saving enough for retirement  plain and simple.

If you are lucky enough to have a pension in retirement, you can afford to save a little less than others who do not have a pension to rely on. For example, members of the military earn a 50% pension on their base salary after 20 years of active duty service. A Sergeant First Class (E-7) in the US Army would receive approximately $2,150 per month in pension benefits after a 20 year career (depending on the average of his/her highest three earning years…that’s why I say approximately). But, of course, the amount of workers who have pensions to rely on in the United States and around the world is dwindling with a smaller percentage of the population earning them.

America Saves Week and How You Can Ramp Up Your Savings

america-saves-weekAmerica Saves Week is a coordinated effort to raise savings awareness. America Saves is a national campaign involving more than 1,000 non-profit, government, and corporate groups that encourages individuals and families to save money and build personal wealth. The national program is led by America Saves and the American Savings Education Council. America Saves Week started six years ago, and it is an opportunity for organizations across the country, both public and private sectors, to promote good savings behavior and a chance for individuals to assess their own saving status. Typically thousands of organizations participate in the Week, reaching millions of people. There is even a Military Saves campaign as well.

America Saves Week is is February 25th to March 2nd 2013 this year. You can set a savings goal and make a plan on how to accomplish your savings. Join over 310,000 people who have taken a pledge to save. Take the America Saves Pledge today. You can also access your savings and test your savings knowledge with America Saves.

So, you can see that with a pension and Social Security that your retirement saving can be less than you would need to save if you didn’t have these options. But, even with those two retirement vehicles, Americans are still not saving enough for retirement. The Fidelity Investments study indeed paints a bleak picture that we are not saving enough for retirement in the US.

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and a graduate certificate in personal financial planning. Email him directly at Hank[at]

Hank Coleman has written 597 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.

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{ 14 comments… read them below or add one }

Roger @ The Chicago Financial Planner

Nice post Hank, while everyone’s number is going to vary based upon their unique situation, but your post does a great job of pointing out the need for most of us to “ramp it up.”


Hank Coleman

Definitely! No matter how you calculate your number or the assumptions that you use to find it, the research shows that we are not hitting our marks no matter what that mark happens to be.


John S @ Frugal Rules

Good post Hank! These numbers never cease to startle me. Like Roger said, all of our situations are different, but there needs to be some basics to be followed in order to make time work for you.


Christian L.

What makes you think Social Security — or some form of government retirement assistance — will be less generous in the future? I suppose I ask this question in light of the fact that the payroll tax increased 2 percent this year.

-Christian L. @ Smart Military Money


Tie the Money Knot

Good post. Figures on how much people have save are generally alarming – or should be, anyway. Most people are simply not going to have an easy time retiring by choice, and will be either A) wondering what happened to them, or B) lamenting their lack of responsibility. Now, clearly some folks have obstacles and bad fortune that isn’t their fault. But I really think that the sense of urgency isn’t there with far too many people. Financial literacy at a young age is vital, and this illustrates it.



Most of us could save more, that’s for sure. But it drives me nuts that the assumption is that people save their entire lives and drawn down those savings at the end. Is there a reason no one talks about cash flowing expenses and leaving principal alone? Just a pet peave of mine.



Those are some troubling numbers. Imagine if you were trying to retire at 65 with $111k in your 401k plan. How would that work?

We’re definitely seeing the switch from pensions to 401k now…the fallout is going to be painful, I fear.


KC @ genxfinance

Most people are not saving enough for their retirement because they don’t understand its importance yet. They haven’t put themselves in a situation when they are no longer working. They think that everything will be just the same. What they fail to see is that it won’t. If you really want to have a better life in your later years, you should take saving for your retirement seriously.


Jules@Fat Guy,Skinny Wallet

Great points! I know this is something my husband and I really need to discuss!


Sarah Park

I think there will never be enough with saving especially with retirement. But I am planning to do some investments with my retirement.


Elizabeth @ Simple Finance

I read an article in Money magazine a few months back that had a “road map” for how much you should have saved for retirement decade by decade. I think the recommendation for my age (30) was 1x your annual salary, which we basically have. It’s scary to read how little baby boomers and those on the cusp of retirement have in their 401(k)s!



Great article Hank. This is probably the best you’ve written! With content like this, I’ll be back for sure!


Mike Craig

Keep saving in your 401k plan so the OBama Administration can steal your money with new taxes on prudent seniors? I think not. A Roth IRA is a better idea at this time. Just don’t tell Obama.
You know there was a time when prudent saving was rewarded in this country. How times have changed/



I and trying to put 20% away into my current 401k, and cap my Roth IRA every year.

I also have a old 401k from a previous employer. I am toying with the idea of rolling that little by little (rolling the difference between my current tax bracket, and next tax bracket) into a Roth account, because like Mike, I honestly don’t think taxes will be lower when I am able to retire (even if I drop brackets).


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