Things are getting better, but not good enough. The good news is that more people are realizing that growing wealth works for anyone. The bad news is that if you want an income in retirement of about $60,000 (not counting Social Security), you need $1,000,000. As always, they key is starting early to save. The sooner you start investing, the easier it will be to reach your goal.
Here is the reality of what you need to save and earn starting at age twenty for forty-five years. Of course, the variables can be adjusted (save more, earn more, save longer).
NOTE: As I have said repeatedly, you need more than a pool of money generating income you will live on. Once you have that retirement fund you cannot take more from it than your planned withdrawal amount because if you do it will not last. You also need an emergency fund and the ability to replenish it as necessary or you must live on less than your investments generate in income.
NEW YORK (CNNMoney) –
401(k) balances reached a record high last year, thanks to a soaring stock market and larger contributions from workers participating in the savings plans.
At Fidelity, the average 401(k) balance hit $91,300 by the end of 2014. While that’s up just 2 percent from 2013, it’s a jump of more than 30 percent from 2011’s average balance of $69,100, Fidelity reported.
The increase was due in part to the stock market, which saw the S&P 500 climb by more than 10 percent — its third year of double-digit gains. But a spike in worker contributions also played a significant role.
Workers and their employers contributed an average of $9,670 in 2014, up 4 percent from the year before.
“The 401(k) is the sole source [of retirement savings] for many,” said Fidelity vice president Jeanne Thompson. “I think there is heightened awareness of the importance of putting money into the 401(k).”
On average, employees socked away 8.1 percent of their salary, the highest savings rate recorded by Fidelity since 2011. Including an employer match, workers saved around 12 percent of their salary, which falls within the 10 percent to 15 percent recommended by financial planners.
Thompson credited the increasing savings rate to a growing number of employers who are automatically enrolling workers into their 401(k) plans at a contribution rate of 5 percent or more.
The bad news: most people will need far more than that for a comfortable retirement. The common 4 percent rule, for example, dictates that $250,000 would provide only $10,000 a year in retirement income.