How Much You Should Have in Your 401k

The old adage is true: The best time to start saving is 5 years ago. The good news is that it's never too late to start. When it comes to savings, one of the most important accounts you can invest in is your 401k. So how much should you have in yours? Here's an age-by-age comparison of average savings in 401k accounts. Use this as a guide to help you track your progress and stay on track with your financial goals.

401k balances at every age

Fidelity investments provides useful data on the average 401k balances based on age range. While age isn't the only factor you should consider (income level and factors like employer matching matter quite a bit), it's still a good way to track your progress and determine how much you should have in your account.

At each age group, Fidelity recommends goals for account balances so you can determine how much you should funnel into your account. Don't settle for the minimum, however; if your 401k is your primary source of money for retirement, it's worth putting as much aside as you possibly can.

Age 20-29

Average 401(k) balance: $11,800 Average contribution rate: 7% of annual salary (1)

Long-term goal: Contribute a total of one year's salary

Saving in your 20's feels like an impossible task. Aside from being young and reckless, lower average salaries means tighter purses and less willingness to put aside money. However, it's worth being a bit more frugal, especially when you don't have expenses like a spouse, family, or mortgage payment. Compound interest can be a powerful tool if taken advantage of early.

Ages 30-39

Average 401(k) balance: $42,400 Average contribution rate: 7.8% of compensation Long-term goal: Contribute a total of 3x your yearly salary

Being in your 30's means stability -- and usually more income to match. If you find yourself with a higher salary in your 30's, consider paying yourself in the form of a 401k contribution before you increase your standard of living. In your 30's, you might find yourself with enough income to make other investments in the stock market or in other avenues like real estate. Take advantage of these options; they can be a useful tool in developing a robust portfolio.

Ages 40-49

Average 401(k) balance: $102,700 Average contribution rate: 8.5% of compensation Long-term goal: 6x your income

40's and early 50's are usually peak earning years. Hopefully you find yourself with fewer debts at this point as well. Before you buy that boat or sports car, make sure that you can afford to contribute a bit more to your 401k. This is the time when most people start to think seriously about retirement, and it's also when contributions usually increase. Take advantage of every avenue you have to save for retirement; ideally, you should have an IRA and a 401k to maximize your savings.

Ages 50-59

Average 401(k) balance: $174,100 Average contribution rate: 10.1% of compensation Long-term goal: 8x your income

The IRS allows people in their 50's and early 60's to make catch-up contributions. There is a cap on how much you can contribute to your 401k each your; catch-ups allow you to legally contribute more, up to a certain amount. If you didn't contribute as much as you would have liked earlier, this can be a powerful tool to help you develop your account. In 2021, you can contribute a max of $6,500 annually to your 401k to make sure that you maximize your savings when retirement comes.

Ages 60-69

Average 401(k) balance: $195,500 Average Contribution rate: 11.2% of compensation Long-term goal: 10x your income

By this point, you should be able to withdraw a respectable amount from your 401k. You total balance by this time should be around 10x your highest salary. Compound interest will have worked in your favor by this point.

If you're intimidated by these figures, remember that there are other factors that can contribute to your retirement savings. You can also have access to IRA accounts, social security or pension money. The final figure from the age bracket -- around 10 times your highest annual income -- is how much you should have total. That figure is based on a generous allowance of spending money for your retirement years. If you're willing to or able to live more frugally, you can get away with less.

Max out your 401k

In the upcoming 2021 financial year, the most you can contribute annually is $19,500. Workers 50 and over can contribute $6,500 more per year. Maxing out your 401k allows you to deduct more taxes from the retirement money you put away.

Most people don't max out their 401k contribution; only around 12% made max contributions in 2019. (2) People who do choose to max our their 401k accounts usually make over six figures; they also tend to be closer to retirement age.

People who earn more generally earn more, as it's easier to have a higher standard of living and still put aside money if you have a large surplus. While it's easier to put away money if you already have money, it's worth doing even if you don't. You should consider making a few small sacrifices for your future.

What's the best way to start? According to most financial planners, it's best to start small and increase your annual contributions by one or two percent every year until you reach the maximum allowed contribution. If your employer offers 401k matching, you should take full advantage of it.

Aim for 1 million for retirement

It takes a long time of dedicated saving every year to accrue a large 401k account. If you're fortunate enough to find yourself with a job that offers 401k matching, it makes financial sense to stay with that company for as long as you can -- assuming you get promoted and earn more consistently.

It's a good idea to remind yourself to increase contribution rates annually. Make it a personal habit to increase contributions every time you file taxes or get promoted -- or both.

There are a handful of smart ways to save for retirement. The best policy is to start as early as possible. A 401k is one of the best ways to make sure that you have enough money to live well of of by the time that you retire. If you're not sure where to start or how much to save, it's a good idea to meet with a financial advisor who can make you aware of all your options.