Retirement seems like a distant thing we never feel ready for, but young people may be on a better path than they think. According to data from the Fidelity retirement platform, people in their twenties have savings of about $ 15,000 in 401 (k) s.
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Find: How to protect your retirement savings during a coronavirus pandemic
Fidelity also released data from the fourth quarter of 2020 for all age groups:
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20-29: $ 10,500, with an average contribution rate of 7%
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30-39: $ 38,400, with an average contribution rate of 8%
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40-49: 93,400 USD, with an average contribution rate of 8%
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50-59: $ 160,000, with an average contribution rate of 10%
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60-69: 182,111 USD, with an average contribution rate of 11%
The numbers are both relieving and worrying. On the one hand, younger people are saving at significant rates. But while a maximum amount of 401 (k) is recommended at around 10%, those who don’t do so are obviously the majority until their 50s.
Is this enough?
CNBC reports that, “However, experts from Fidelity recommend that you save 15% of your salary during your career in order to prepare for retirement by the age of 67. “That means savings should start earlier, and according to Fidelity, people in early care seem to be doing just that, even in small amounts.
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The important thing to remember is that this money grows with tax deferral. Let’s look at the 60-69 range that Fidelity provides — the average account balance is $ 182,111. While this seems like a significant lump sum, you will be paid in increments. Suppose you receive payments monthly – these payments will be taxed at a still unknown rate. The advantage of 401 (k) is that it is contributed in dollars before taxes, before you pay income tax. That tax will simply be deferred only when you start drawing funds.
The amount of $ 182,111 broken down over 10-20 years, further broken down into monthly payments, and then further taxed at an unknown rate 20-30 years below gives a more sober picture.
To make up for this, many are also considering investing in a Roth IRA or VUL, both of which are financed in dollars after tax, but are used tax-free — essentially the opposite of 401 (k).
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Last updated: July 23, 2021
This article originally appeared on GOBankingRates.com: Here’s how much you should have in your 401 (k) account, based on your age
