Cortburg Speaks Retirement

How Much Should You Have Saved in Your 401(k) by Now?

• Miguel Gonzalez, MBA, AIF®, CPFA®, CRC® • Season 2024 • Episode 218

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Wondering if your 401(k) savings are on track? Learn key benchmarks by age, tips to grow your retirement account, and how to plan for a financially secure future.

Cortburg Retirement Advisors is a boutique financial planning firm committed to helping you grow, protect, and preserve your assets from your first job to retirement. We specialize in wealth management, estate and tax planning, group retirement, employee benefits, insurance, and retirement planning to navigate any economic climate.

Miguel Gonzalez, a Retirement Specialist with 20+ years of experience, offers expertise in retirement income planning, investment management, and retirement plan design. With an MBA from Columbia Business School, and professional experience with JP Morgan Chase, Merrill Lynch, and more, Miguel is a trusted advisor for his clients.

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Welcome to Cortburg Speaks Retirement

An audio podcast about investing in the stock market, financial planning, money management and retirement planning.  Each Wednesday, we help investors at all stages of life learn how to potentially grow and preserve their money from first job through retirement.

Now here is your host, Miguel Gonzalez.

Good morning and welcome to the CORTBURG SPEAKS RETIREMENT audio podcast.   

This week we’re talking about the Rule of 25, benchmarking 401(k) balances by age, what can impact a 401(k)'s balance, and monitoring your 401(k).

A crucial aspect of planning involves understanding how much money you should aim to have in your 401(k) now, based on your age, as you save for retirement. Knowing this amount and devising a plan to work toward this balance goal is vital.

 

Many suggest the Rule of 25 as a 401(k) balance starting point. This model states that you should aim to save at least 25 times what you expect to spend in your first year of retirement. For example, if you project that your expenses will amount to $40,000 a year once you've retired, then you should aim to have at least $1,000,000 in your 401(k) account by the time you retire.

However, this amount isn't set in stone, as everyone's situation differs. It's essential to understand that using the Rule of 25 as a starting point is a general guideline. Personal factors, such as healthcare expenses or cost-of-living increases, can significantly impact how much you should aim toward saving.

It's also vital to acknowledge that multiple retirement savings strategies, such as your 401(k), IRAs, other investment strategies, and Social Security Retirement benefits, will impact how much you need for a confident retirement.

401(k) balance benchmarking by age

Having specific age and 401(k) balance benchmarks can be helpful for determining whether you're on track with peers. While everyone's situation is different, bench marketing provides a starting point and a 401(k) balance-based approach to aim toward. These benchmarks are not a set-in-stone rule but a guideline to help check that your retirement savings are on track.

  • By age 30, you should have one times your annual salary saved.
  • By age 40, you should have three times your annual salary saved.
  • By age 50, you should have six times your salary saved.
  • By age 60, you should have eight times your salary saved.
  • By age 67, your total savings goal is ten times the amount of your current annual salary. So, for example, if you're earning $75,000 per year, you should have $750,000 saved.¹

Remember that it's never too late to start saving for retirement. However, the earlier you start saving, the more time your 401(k) has to accumulate value.

What can impact a 401(k)'s balance?

Yearly salary – Many contribute a percentage of their income to their 401(k). Since your earnings are projected to increase, your contribution amount will simultaneously increase.

Your contribution amount—Aim to contribute enough to receive the employer's match. By setting up automatic increases, you will increase your contributions each year.

Your risk profile — Investors with a higher risk tolerance tend to invest in riskier assets with more growth potential. Still, investments with a higher risk are more impacted by market fluctuations, which may result in more significant losses. Investors with a lower risk tolerance tend to invest in assets that are less likely to lose value due to market fluctuations.

Market performance—Market fluctuations can affect the growth of your 401(k) in numerous ways.

Stock prices—Positive market performance increases the share's value, whereas negative performance decreases the share's value.

Interest rates—Investment strategies tied to interest rates are impacted when rates rise or fall. Examples of interest-rate-sensitive strategies include bonds and money market funds.

Your employer’s contributions— Employer contributions can help increase retirement savings by providing a dollar-for-dollar or partial match for each dollar an employee contributes.

Monitoring your 401(k)

Monitoring your investments is crucial to determining if you're on track toward your goals and accumulating enough retirement savings for your situation. There are several ways to monitor your 401(k).

Regularly check your account balances—Most 401(k) providers and all investment custodians provide online account access or a smartphone app, making tracking your account balances easy. When monitoring, consider your current balance and how it compares to your goal.

Assess your 401(k) 's asset allocation and rebalance—One factor influencing your 401(k) 's performance is how its assets are allocated. This review involves spreading your investments across different asset categories, such as stocks, bonds, and mutual funds, a strategy known as diversification. Next, check that your asset allocation aligns with your risk tolerance and time horizon and rebalance your 401(k) portfolio to align with these factors.

401(k) reviews—You should review your 401(k)’s investment mix and performance at least annually. However, suppose you experience significant changes in your life, such as marriage, divorce, or job loss. In that case, you may need to review your 401(k) and progress toward your retirement income goal more frequently.

Meet with a financial professional—A financial professional can help monitor your 401(K) and other investment strategies. They will help you understand how your combined investment strategies are performing as you work toward your goals.

Understand fees—Last, stay informed about the fees associated with your 401(k). These fees may include administrative fees, investment fees, and service fees. High fees can eat into your retirement savings over time, making managing these fees vital.

Checking in with us can help you make more informed decisions about your 401(k) as you work toward a confident retirement. Remember, staying proactive about your 401(k), continuing to save, reviewing your 401(k) at least annually, and setting automatic contribution increases yearly is vital.

Make sure to visit our website, www.CortburgRetirement.com. Our site is filled with educational videos, eBooks, publications, and financial calculators designed to help you learn more about your finances.  As you search our site, send us a note regarding any questions you may have about any particular investment concepts or products. We will get back to you quickly with a thoughtful answer.

This is Miguel Gonzalez, Certified Retirement Counselor (CRC) and Managing Partner, with Cortburg Retirement Advisors signing off for this week’s educational podcast. 

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Miguel Gonzalez, MBA, AIF®, CPFA®, PPC®, CRC®

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