How Much Should Be in Your 401k at 30?
September 21st, 2006 4:46pm EST
You know the importance of saving for retirement early, and perhaps you know that money you put into a 401k or IRA in your twenties is more valuable than money you contribute down the road. But how much should you have saved for retirement before turning 30?
“Saturday: 401K Plan (Auntie Em’s) ” by m kasahara.
Assuming you have been working since you were 22 or 23, at 30, your 401k account should equal about one year’s salary. For example, if you make $40,000 a year, you should have $40,000 saved.
Seem high? Don’t flip your lid if your account doesn’t stack up.
No two investors are alike, especially beginning investors. Your starting salary range and the number of years you have been working are going to be much bigger factors in determining your retirement savings balance at 30 than they should be at 40 or 50 when you will have had additional years to make catch-up contributions or adjust your portfolio as necessary.
Differentiating Factors
You may not have much in retirement savings if you have been a student for much of your twenties, not to say those years of school won’t pay off. Higher education increases your salary expectation (and your potential to make larger 401k contributions down the road).
If you have been battling with credit card debt you also may be behind the benchmark, but with good reason. High credit card interest rates could crush even the best retirement account returns, so it’s best to use extra funds to dispatch credit card balances quickly.
That said, even indebted twenty-somethings should contribute the minimum 6% to a 401k. It’s important to develop the lifelong habit of making contributions.
And, if your employer matches contributions, not contributing is like passing up a part of your salary!
Assuming you start work at 22 and can immediately contribute to a 401k, and your employer matches 50% of your contributions up to a maximum of 6% of your salary, you will need to contribute 10% a year to reach this goal, assuming an annual return of between 8-9%. Here is a table showing how this looks for somebody who begins working at 22 at a salary of $30k. This investor gets an 8% annual return and receives an annual 3% raise.
| Age | Salary | Aggregate Contributions & Returns |
| 22 | $30,000 | $2,700 |
| 23 | $30,900 | $5,697 |
| 24 | $31,827 | $9,017 |
| 25 | $32,781 | $12,688 |
| 26 | $33,765 | $16,742 |
| 27 | $34,778 | $21,212 |
| 28 | $35,821 | $26,133 |
| 29 | $36,896 | $31,544 |
| 30 | $38,003 | $37,488 |
What To Do If You Have Irregular Income or Pay Increases
Today many twenty-somethings will work several jobs before turning 30. If this is you, it means your income will fluctuate considerably. If you are ambitious, it is also possible that your salary could as much as double between the time you start working and 30. In these cases, set an absolute 401(k) savings goal for the time you turn 30 rather than using your annual earnings as a guide. (Also, be sure to consider the impact of vesting schedules on employer-matched retirement funds).
My rule of thumb for setting a retirement saving goal? Your contributions, up to the legal maximum 15%, should be just large enough to feel uncomfortable. Think about what you could contribute. If you say, “I wouldn’t miss another $100 a month,” then consider going higher until you say “that might get a little tight.” Pull back five or 10% from that discomfort zone, and invest away!
Related Posts
- The 401(k) Plan: An Introduction
- How To Take a 401(k) Loan - And Why You Shouldn’t
- 401(k) Vesting and Changing Jobs: Should You Stay or Should You Go?
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On May 2, 2007, Phool 4 Money said:
I wish I had a job that paid $30k @ 22 years old. I don’t know too many people that fall into your category.
I know this is a matter of demographics.
Raises are not what they used to be. Especially with the price of everyday items (ie gas, heating oil, food, etc) going up at a much faster rate than the 3% raise.
Did this person in your example have to buy a car or house?
I just feel this is truely unrealistic.
On Jun 26, 2007, Vanessa said:
I’m a 26 year old single female that makes about 36,000 a year. I have been contributing money in my 401k account since I was 21 yrs old and my numbers are pretty close to the table shown above as far as income and retirement savings.
Let me also add that I had also purchased a new car when I was 21 (never again will I buy a new car, instead buy used) and then was fortuate to purchase a condo when I was 22 years old. This is very attainable you just have to budget your money right.
Now that I have paid off my car I am socking away 15% of my income into my 401k account.
Anyone can do this, you just have to prioritize what is most important to you. You may have to make some sacrifise but it it well worth it in the long run.
Wishing everyone great success and to live like noone else!
God Bless,
Vanessa C.
Orlando, FL
On Jun 28, 2007, Tammy said:
I’m a 30 year old married female without children that makes 44,000 a year. I have also been contributing to my 401k since I was 21 and my numbers are a little better than shown above. My savings is actually higher than my current income, so I must be doing well.
I do agree with Vanessa that it is possible for anyone to save when you prioritize, knowing however that some people whom have children will have a much more difficult time.
Making good choices in life certainly bring their rewards.
Tammy
On Jul 4, 2007, Patti said:
It would be great if there was a way to plug in your salary (or combined salary if married) and age (again, average age if married) into some type of calculator to compare to your 401(k) balance. I am 42 years old and thankfully make more than $30k but still would like to do a health check on my investment balances. Does anyone know of such a calculator?
On Jul 18, 2007, Chris said:
I have recently turned 30 years old, am not married and have no kids. I don’t quite match the above table, since my work life did not start as even as the table shows. I live very modestly, drive a used car, can fortunately repair it myself and I rent an upper flat. Don’t get me wrong though, I do like to travel and have fun, I just watch how much I spend.
I did not start contributing to a 401K until I was 27. I am currently at around $15,000, as I contribute 6% of $62,000 Salary and get 50% company match. I managed to also save on my own over $100,000 (started with only $50 to my name 10 years ago) and I invest it in CD’s and a IMM account at approx 5%. I don’t think I am doing too bad despite the list above.
Should I be going about my savings a different way? I’d like to get the best return, but I don’t like to risk my hard earned cash.
Regards,
Christoper
On Sep 23, 2007, James said:
I’m 30. Working since 2000. ~55 K in retirement savings. 90 K per year in salary. It is not easy to make and save money. I encourage all to save for someday you might need it.
On Oct 16, 2007, Jason said:
I started work in 2001 at age 22 and did not contribute to my 401k until 2003. After graduation, I only made 27k/year and did not have additional funds to invest–credit card debt will burn up any extra cash you may have. Fortunately, my employer matches 100% up to 6%. I currently invest 8% of my 68,000 salary and with my employer’s contribution, my monthly 401k saving is $800, which I think is good. I am almost 29 and have about $50,000 in my plan. If you can do it, I would invest as much as possible as early as you can. I regret not saving immediately after college. I also recommend increasing your saving percentage as you get wage increases, bonuses, or promotions.
On Nov 6, 2007, SAFIYA said:
I’m 30 Years old, nd i have been in the workforce for about 5 years, but cold only contribte the last four. I have about 18k in my retirement, and about 6k in savings.
My goal is to save as much as i can at an early age. I recently got a promotion, and will be making 71k. i am putting all of the extra money in retirement and a house, the best investment ever. I always wondered how i compared to others my age, i’m a litte behind most of you guys, but i still know i am doing well at this age.
HAPPY SAVING!
On Nov 22, 2007, Troy said:
I’m 31 now, and I don’t stack up even close compared to my salary. My salary has double 3 times since I began working (21 years old with 16,700). I’m finally able to contribute much, much more to retirement, now that I’ve paid off loans. When I’m 40, I project that I’ll have over $200,000 in my 401(k). Oh, and I’ve since moved to a Roth 401(k) because I’m now considered an HCE (Highly Compensated Employee).
Of course, salaries are higher now in general than the were 10 years ago when I started working (keeping in mind that 16,700 was way under par even for that time). I would like to see high schools teach money management rather than some of the blow-off classes that are out there right now. That might have changed my circumstances quite a bit.
The important thing to keep in mind is that it is important to save anything you can at a young age and let compounding interest work for you. You may not see a big difference in 10 years, but down the road it will make a huge difference.
The other thing I’d like to point out is the importance of paying off debt. Just because you are contributing to your retirement doesn’t mean that you are going to be ok. The best thing you can do is get rid of that debt while you are contributing. That allows you to put much, much more away than you would otherwise.
On Dec 7, 2007, Charlie said:
To Chris:
If you have $100k in the bank, perhaps the best way to invest, if your currently renting, is to buy a small house or condo. If you already have your own place. Go ahead and open an investment account with the big guys, Vanguard or Fidelty. Slowly put your money into an IRA account.
If you’re going long term, you need to stay above a 6% return rate.
On Jan 7, 2008, Aaron said:
Im 24 years old and have been investing since ‘04 i just recently increase my contribution to 6% and have accumulated $7000 between 401k and company profit sharing. Im ignorant when it comes to these 2 accounts. What is the difference between them both and what is the best way to diversify my portfolio to get the best bang for my buck in the long run??
On Jan 18, 2008, Brandon said:
I’m 24 and contribute 10% into my 401k my plan. My company matches 6%, and I also contribute about $2000 annually to a roth ira. Right now my savings are around $21,000 between both these accounts. By the time I am 30, I hope to shout I have well over $100,000 between the two.
On Feb 8, 2008, Dividendgrowth said:
I just turned 23, and I hope to have $200k in my accounts in 6 years through regular contributions. Only time will tell if I will achieve that.
On Mar 12, 2008, the baglady said:
That’s a pretty good measurement. Though, some people start working later because of graduate school so they may save less and a lot of companies I know don’t have 401k matching. I’m almost 25 and have been contributing to my 401k since I graduated. So after 2.5 years I have a bit over 32k (I contributed about 10000 to 14000 a year with no matching). I am making around 90k a year now so hopefully in 5 years I will have over $100k in my 401k.
On Mar 13, 2008, Stan said:
Yes, baglady, grad school is a key variable. I barely had $15k when I turned 30, having not finished my PhD until turning 28 and having acquired some school-related debts. At age 37, though, my quarterly dividends already would cover 70% of my monthly expenses (though, obviously, at this young age I still reinvest dividends rather than taking them in cash). Since I’m currently spending less than 1/3 of my monthly income, I’m estimating I’ll hit the point where dividends cover 100% of my expenses by around 41-42. At that point work really becomes all about “self-actualization”.
If I could do it all over, I still wouldn’t dream of trading in my grad school years just so I could have a job at 21 and gain an extra 7 years of compounding.
So as a former grad student I think the question of “how much you should have by age 30″ is pretty uninteresting. I’d be equally interested in asking “how much should you have in your Roth IRA by age 17?”
On Mar 15, 2008, Tom said:
Baglady, your situation is very impressive, do you mind elaborating on it? What profession are you in that you are able to make 90k a year after only 2.5 years of work experience? Do you live in an area with a high cost of living? Did you have to deal with any debt (i.e. student loans)?
As for myself, I recently turned 22 and only have ~1.4k in a mixture of Roth 401k and regular 401k, but I’m planning on putting my money (~100/month) into a Roth IRA after getting the most out of my company’s 401k matching. I’m also focusing lots of my income on killing off my student loans, which I hope to pay off within a few years.
On Mar 18, 2008, StackingPennies said:
“My rule of thumb for setting a retirement saving goal? Your contributions, up to the legal maximum 15%”
I do not think there is a 15% legal maximum. My last company allowed 50% pretax, and my current allows 20%. Legal maximum was 15.5k.
I’m 25 and have been working almost 2 years. I have about 16k in my 401k and another 6k in a Roth. I think by the time I’m 30, I want 100k in retirement. My salary hopefully will also have increased to about 100k as well, if I earn my MS degree while working.
On Mar 18, 2008, ronka said:
I am 42 years old. I have $130,000 in my 401k plan and my annual salary is $110,000. I know the amount in my 401k is way too low for my age but I am not sure just how high it should be. I have a high mortgage and a car payment but not too much credit card debt. I do have a large home equity loan as well. My employer only matches 25% up to 5% contributed.
On Mar 20, 2008, Dave said:
I am very impressed with the posters on this site, definitely the exception than the norm in terms of savings. I am 28 make about 95k a year and have only a total of 20k in a combination of a roth 401k and a regular 401k, which I contribute 3% respectively. My employer matches 100% up to 3%. My salary has dramatically increased in the last 2 years (reason for the low amount in my 401k) and I expect it will increase at least 25-50 in the next few years. My only suggestion to everyone is to have a rainy day fund invested in a liquid product/security (cd or savings account) of about 10k. From first hand experience, life will throw you some curveballs and that 10k will provide a nice security blanket.
On Mar 31, 2008, thebaglady said:
Hey Tom,
You’re welcome to read my blog to find out the answers to your questions.
http://baglady.dreamhosters.com
On Apr 28, 2008, Craig said:
I am 31 and my wife is 30. We have been very fortunate and have been able to save approx 270,000 in retirement combined over the last 8 years.
On Apr 29, 2008, PeterD said:
I’ve been fastidious in my saving, not just for retirement but for my personal savings account as well.
I have $33K in retirement accounts (401K, roth, IRA) and $27K in CDs and checking accounts. Make $95K a year.
On May 20, 2008, Meredith said:
I’m 29, and am contributing 7% to 401k for only the last 2 years, was doing 3-4% for the other 5 years. I only have 13K in 401k. However, I have $20,000 in savings. I am torn over whether to put that into a RothIRA, or some other type of fund like cd’s. I only earn $30,000, with not too much leeway in terms of yearly raises. Any ideas? I was thinking of contacting Suze Orman about what to do!
On May 22, 2008, Ant said:
I am 27 years old and my wife is 26. Combined we have approx. $180k in our 401k. I consider myself in a good position since my house is 3/4 paid of and both cars are paid off. I am actually worth something now (finally no matter how messed up that sounds).