How Much Should Be in Your 401(k) at 30?
You know the importance of saving for retirement early, right? Perhaps you also know that money you put into a 401(k) or individual retirement account (IRA) in your twenties is more valuable than money you contribute down the road thanks to the miracle of compounding interest.
But just how much should you have saved for retirement before your thirtieth birthday?
Assuming you have been working since you were 22 or 23, at 30, a great target is to have a 401(k) or IRA equal to about one year’s salary.
For example, if you make $40,000 a year, you could try to have $40,000 saved for retirement. (And if you did save $40,000 before turning 30 and never added another dime, you could have as much as $600k by age 65 with an eight percent annual return).
That said, don’t freak out if your retirement saving isn’t on this level yet. The sooner you start, the better. But if you start at 30 and don’t plan on retiring until you’re 65, that still gives your money plenty of time to earn interest.
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
There are couple of good reasons some twentysomethings don’t start putting away for retirement immediately:
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- You’re in grad school
- You’re battling big debts
If you’re a student, it’s unlikely you’ll have extra money to tuck away for retirement. And that’s okay, because your education will hopefully improve your lifelong earning potential.
If you’ve got high-interest credit card debt, your top priority should be to pay that down. Debt interest rates could crush even the best retirement account returns, so it’s best to use extra funds to dispatch credit card balances quickly. The one exception? If your employer matches 401(k) contributions. In this case, contribute the maximum percentage your employer will match, then increase retirement savings after your debt is gone.
An Example
What does it take to save your annual salary in a retirement account before you turn 30?
Let’s assume you start work at 22, can immediately contribute to a 401(k), and that your employer will match 50 percent of your contributions up to a maximum of 6 percent of your salary. Assuming an eight percent average return and annual raises of three percent, you’ll need to contribute 10 percent of your salary every year to reach this goal.
| Age | Salary | 401(k) Balance |
|---|---|---|
| 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 |
Factoring in Irregular Income and Raises
Today many twenty-somethings will work several jobs before turning 30. If this is you, it means your income will fluctuate considerably. 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).
Rollover 401(k)s into IRAs when you leave jobs and stay on top of your investments. Keep them simple, like index funds and target-date funds, but make sure they’re aggressive. Finally, consider opening a Roth IRA and contributing as much as you can (up to the $5,000 limit) to supplement your 401(k). Unlike your 401(k), contributions to a Roth IRA are made with post-tax dollars, but once you retire the withdrawals are tax-free.
How should you save for retirement? My rule of thumb is that your contributions, up to the legal 401(k) contribution limit of $15,500 (in 2009), 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 percent from that discomfort zone, and invest away!
- Take Action: Open an IRA online now
Related Posts
- What to Do If Your Employer Cuts Its 401(k) Match Benefit
- What To Do If Your Employer Doesn’t Offer a 401(k) Plan
- 401(k) Q & A
- Pay Off Credit Cards or Contribute to a 401(k)?
- 401(k) With Company Match or Roth IRA?
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I am 31 and my husband is 35. Collectively, we have about $283k in our retirement accounts ($53k in mine and ~$230k in his). We don’t have a house and rent in Manhattan and are frantically putting away money in our savings accounts (currently at ~$230,000 collectively). I started working right out of college and my income started off at $9k in my first year (Americorp) and went up to $29k the next year and went up sporadically after that point. Currently, I make $80k and have just started to max out my 403b plan. My company contributes 4% of my salary to my 403b regardless employee contributions. I’m sad that I didn’t immediately start contributing to a retirement plan right out of college but I barely had money to spare and spent my funds paying down my student loans and credit card debt. We are now loan and debt free!!! My husband makes a lot more than me and is definitely instrumental in keeping our net worth high but I’m happy that I can hold my own relatively.
My wife and I are 30 years old, I make approx $92K/year she makes $32K/year our 401K (split between 401K & roth 401K) approx $119K, rothIRA $3K, emergency fund of $15.5K, brokerage account $10K. Own 3 cars (paid for) & home (25% equity), no other debt. She is about to stay at home after the birth of our second child. I think we are doing OK. Keep saving & never stop, live below your means
I’m 40, my wife is 37. We have a combined $317K in 401k, $45K in CD, $6.5K in savings, $23K in brokerage, own some land in FL that the value of which has been shot, no car payments, no debt, $303K mortgage. We live in a good suburb of Minneapolis.
I am amazed at how much some have in their retirement accounts. What kind of percentages of your income are you all saving? I am currently putting 4% into my company 401K with a 50% match. It will take me a long time (and good returns) to accumulate 200-300K in mine…
Having no kids helps…
I am saving 6% with a 6% match in a Roth 401(k) account. I also save 5k per year in my Roth IRA.
I have been saving since I was 22 and turning 30 in April. I made around 75k at 22 and now make a shade over/under 100k depending on annual bonus payout.
I now have 160k. It is a slow and steady process. Knowing I will have no tax bill at the end of it all is important to me as well.
If you are putting away $5000 a year and have your money sitting in index funds, you’re going to go nowhere fast.
I would be interested to hear your theory, but off the bat I disagree. Interesting book changed my view: Little Book of Common Sense Investing- James Bogle – founder of Vanguard.
Agreed.
I have no idea how these people have so much saved. If you have more than 75 grand in your 401k at 30, I would bet my 401k that you have more than 98% of all Americans.
I think it has a lot to do with where you live. For example if you live in the east cost where salary and home prices both tend to be high, you have opportunity to gain more from home sales and save more from working.
I agree. I have been saving since I was 23 (almost 31 now). I have only $28K in my 401K and $2K in my Roth. I am a part time Dental hygienist and a single mom…saving as much as I can but it’s worrying me that I don’t have much!
I am 29, wife is 28 and live in major east cost city. We have around $250k combined across 401k, IRAs and stock holdings and another $30k in cash savings. Our only debt is a mortgage.
I think the keys are:
* getting married early (24 for us) to combine income and eliminate redundant costs was HUGE
* not having kids is huge
* low student loan debt (we only had $20k total out of school and paid that off with a large one-time bonus)
* maxing out 401k every year ($16,500) no matter what
* reaching a lifestyle you can live with and trying hard not to ratchet up your consumption as income grows (we have a combined income of around $185k before tax, but live at about the same standard of living that we did at $120k).
A lot of these factors are out of people’s control, so some is luck, some is discipline.
And just a PS-many folks in Gen Y don’t do a cost-benefit analysis before doing things like going back to school. If you’re going to go back to school for a graduate degree, for the love of all that’s good, don’t quit your job to go full time. You will NEVER recoup the lost income and career momentum unless your diploma says MIT or some such. Wife and I both got MBAs part-time after work that were about 80% employer-funded and it turned out to be a great decision. Others who quit to go full-time are still looking for jobs.
we have 2 kids in grade school and they are sucking a lot of money out of us
I would rather have my kids than 200k in my 401k. Can’t take the money with you after you die. We have enough to retire still but not 200k at age 30.
people on here are rich. I am 25 and make like 48,000 – what job do I need to go back to school for to make 100K when I’m thirty like these yahoos
Just because you read it on the internet doesn’t make it so.
There are people out there doing it – I ’stepped in it’ – I had a good programming job making 34k/year out of college in 1994. In 1998 the software I was working on got super popular and I was able to go out and work for myself and charge big companies $125/hour – and work full weeks(2000 hours per year) – so I was in my mid-20’s making 250k/year. Its 12 years later and I charge about the same rate – I’ve made in the area of 200k/year for 10 years and I’m still under 40. I have 400k in retirement and my wife has an additional 216k – plus we only owe 25k on our house purchased for 240k in 2003.
Great comments, thanks all for being honest and sharing. Really help those of us with a late start or that have reached bumps in the road of life so that we can put things into perspective. Here’s my path hoping others can gain from this…all I can say is I am worried.
WORK AND EDUCATION: I am 39. I started working at 16 technically then moved to the west from the east. I had to work FT at the age of 18 for a year in order to avoid out of state tuition as I hadn’t taken my SAT. Our family had 5 siblings, mom, dad, dog, cat, mortgage and a car so we couldn’t afford much other than the essentials. We didn’t even have real furniture just the basics like a dinner table, a couch and beds. After working full time at age 18 for a year to establish residency. I made about $18K a year as a receptionist at a high end bank. I went to a JC at 19, and worked somewhere else making a little more and lived at home doing marketing and sales. I bought a car for $6K and my dad helped with that and with school. I had to pay him back for both and I did, roughly $8K. I then transferred to a PAC 10 private school using loans and gov’t subsidy to get a degree in mktg/fin while working full time in the marketing and sales job. My school loans were $80K, dad paid for half, myself the other and it is paid off now. Going to a private school has made a huge difference in how much I make and the connections I have made in life, i.e. it was worth the $80K. I was promoted when I graduated into a marketing/corp sales job, with a free car and cell phone. I thought I was ballin making $26K a year! I then moved into telecom sales and made a closer to $35K. Then went into marketing in the mortgage industry making $50K, then led a marketing dept as a VP at a credit union making $65K, then moved into the Fortune 46 role making $135K a year as a VP in Marketing, plus a 20% annual bonus and had a 401K whereby I was contributing 15%, stocks and a pension plan with the Fortune 46 company I was employed by. Now I make $150K a year, plus an annual $20K bonus (net) minimum, stock options, pension plan, 401K max contributions, mortgage is $27K paid off and has about 8% equity in a bad economy. I have about $56K in savings. My next step is stocks and bonds.
CAR: My 1st car got stolen twice and stripped completely. I couldn’t use insurance as it was too expensive. So bought a car for $4k and got hit by an 18 wheeler. Continued to drive it through JC as I couldn’t afford to do anything else. THEN my dad gave me his clunker when I went to the PAC 10. I rolled that until I was 27. Since then I bought 2 Fords, a BMW and a Benz and sold them all back. I got my money back for both the Benz and BMW because they were both lemons. So those depreciating costs were recouped. I went carless from 2006-2009, renting cars as needed for no more than $450 a month all in. January of this year I bought a Saturn Aura for $23K before they went out of business and got $10K off. The car is worth more than I paid for it even after drive off and extended warranty. I will drive it until the wheels fall off.
PROPERTY: As for a home, I rented until the age of 34. I bought a condo conversion 2/2 unit with 1630sqft for $430K after a 10% condo conversion discount. I took the cash out vs the discount and got a jumbo loan for $395 and a 2nd for $90. I invested the cash into other real estate and made 25% off of it, which is a net gain of about 15% if you factor the interest being paid on the money. I should have used the money to immediately pay down the mortgage to offset the interest, but I was into “new money” and got a little excited about that. I then lost my job and was without work for 2 yrs, but had 10 months of severance that I immediately invested to carry me through and allow me to hold on to my property until I landed a job that would relo me and pay for the sale of my property. I deferred the sale of my property until this year as the economy was terrible. I now have 8% equity in it and can keep it and hold out for the big payday which could be as much as $300K including a $50K investment into remodeling, paying down the mortgage in the meantime and the gain as the economy gets better. The pros of selling now are I get 8% and can likely gain a lot more by investing that into something with a larger profit margin and I will have a $485K loan paid off on my credit which will boost it even higher than it is (700s).
DEBT: I have about $20K in debt of which I will pay off with my tax refunds this year.
I am and have been single with no kids. I still am nowhere near where I need to be because with all that I am still only holding a net worth of $210K (using equity in mortgage, 401K, and savings vs including the entire value of the home asset). And only $100K of that is in 401K. I am nearly 40, I should be at $450K plus in net worth according to standard which will get me “very limited retirement living after 65″. So I say invest and save all you can (interest gain), get married as early as you can (write offs and de-dupes living costs), wait on kids as long as you can, take risks at younger ages to yield higher returns, and spend as little as you can…or take the easy route and marry rich if you weren’t …born into it, lucky enough to have won something or worked hard and achieved financial success already.
Assuming I live to at least 85 and live from 65-85 at a $100k a year income and am able to work FT at my salary or more until the age of 65, I will need to have saved at least $2MM to get me by. If I live longer than 85, obviously I need $100K more saved per year I live. At the rate I am going, I will only save about $1MM. And none of this assumes illness or other things that come into life like kids! So be safe and plan $100K min for everyone in your household come retirement. Also, keep in mind that 30-50 years from now the cost of living will be drastically higher and $100K may not get you more than poverty! But then again, you would be lucky to live that long…so thank God none the less.
I rambeled, but share the level of insight that I would like to have and hope someone can gain from this and make some “right” turns instead of left turns!!
A healthy way to accumulate funds is to invest in brick and mortor companies that offer a GOOD dividend. Stick with it try NOT to end up divorce situation on your way and concentrate of refraining from the status quo: like driving a vehicle too expensive-its only a point A to point B, right? I drive a 03′Neon and presently have no debt besides a home which my wife and I have 170k left to go.
Believe me, life is MUCH BETTER when there is CONTROLLED DEBT and discipline to guide spending.
Let’s see, saved about 30k by age 25 (my wife an additional 10k). Then we quit our jobs and went into the Peace Corps for 2 years. Then another 2 years in grad school and took out money out of retirement (20k) accounts for a down payment on a condo. Traveled to 5 out of 7 continents.
Now: 32 – about 70K combined saved. About 130K combined student loans, no other debt other then a 650K mortgage
(relocated into the SF Bay Area and there is no cheap housing unless you are willing to give up 1-2 hours of your day on a commute and have to drive everywhere). 1 daughter, 1 other (TBD) on the way. Any financial regrets? Still haven’t seen Australia or Antarctica.
The Punchline: Assuming 12% savings increasing by 1% a year, an 8% ROI, my and my wifes current post grad school salaries (180k), inflation of 3.5%, not wasting excess money (e.g. not buying a new car ever, vacationing by actually traveling as locals do instead of like tourists), saving everything above the amount I use, paying for my kids first 4 years of college, home cost increasing in line with inflation, SSN reduced by 20% and no medicare and my companies retirement plan I project an age 65 net worth of between $17-24 million roughly 2-4 times what I would need if I live to 100 and lived at what I use now (inflation adjusted of course) + 30% . Of course lots of variability because of promotions, keeping my job, how much I actually spend (way below my salary and paying off those student loans) etc. but still even without the pension, without SSN, salary increasing with inflation and no increase in value in the house we would still be more then okay.
My point: Playing a little bit of catch- up isn’t necessarily a bad thing, especially if you are planning on having kids. Now with kids I couldn’t spend 2 months traveling through Southeast Asia or stay up all night finishing a paper or any number of other things. My father passed away prior to retirement so I know there is no guarantee you can do these things later either. I think better financial advice is to set general goals for things you would like to do in life (a bucket list so to speak) and prioritize for before kids, after kids, retirement and other (i.e. professional, family, etc.). Figure out when you’re going to do each and what you have to do to make it happen. Find your passions.
i’m not one to comment on blog posts but these figures given on the comments are deranged.
ichimunki said that she makes 80K a year for a nonprofit/403b plan at 31. Even in Manhattan, those are some high odds.
Go to another web site for help.
Just to rely to the comment, I work for a foundation which is a nonprofit but the pay is better in foundation work. I have also worked since the founding of the organization and we only started with 2 people. We have been around for about 6-7 years and I take on A LOT of work so my pay is justified. My sister is a paralegal and probably makes a little more than me. These are NYC salaries! As long as you stick around for a long time and show your worth with hard work in NYC, I’m sure you will eventually make close to what I make. Please note that I have not gone to graduate school or have children which helps tremendously in terms of net worth. The negative parts of the net worth equation are the high high salaries in NYC/NYS and the high cost of living. Without careful budgeting, I’m sure $80K would not go a long way here. Currently, we pay $3,000 a month to rent a one bedroom/one bathroom doorman apartment in Manhattan. Anyway, the key to these high salaries and high net worth are to: 1. Move to a high salary city 2. Stick with a good job and show you are worth more money 3. At least get a college degree from a top private or state school. I don’t know if grad schools are worth the money in terms of net worth for certain professions although you definitely need a masters for law, medicine, etc. 4. Pay off all debt.
NYC metro, Master and Doctor degrees $105k sal & spouse $120 + bonus. Non-lux cars paid cash. Debt free 3 years, $100k saved, $25k stock, $60k in one 401K (age 30), spouse (28) to begin one this year at max donation. Started at 22 @ 40k salary working way through bachelors/masters. Volunteer/mentor to ‘urban’ youth by staying in a white flight zone. $1700 rent 2br/1.5 bath garage
I’m in my mid thirties and so is my wife. My 401K plan tracks my balance beginning in 2006. At that point, I had about $60K in 401K after investing for 10 years. 4 years later it is at $135K. My wife saw similar patterns and her balance is approximately the same, so we have about $275K cumulative. In four years the balance more than doubled, even considering the economic downturn in 2008. Point is that eventually compounding interest and increasing equity prices begin to snowball and the money begins to work for you.