401(k) plan participants say they have to save so much to retire

A couple looks at their retirement savings.  A recent survey found that Americans believe they need $1.9 million in savings before retirement.

A couple looks at their retirement savings. A recent survey found that Americans believe they need $1.9 million in savings before retirement.

If $1 million was once the consensus goal for U.S. retirement savings, that appears to be changing. A recent Schwab Retirement Plan Services survey found that 401(k) plan participants across the country now believe they should save $1.9 million for retirement. The online survey, managed by Logica Research, conducted 1,000 interviews with plan participants aged 21 to 70 and measured levels of confidence in achieving their retirement goals. Whether you’re just starting to save or are fast approaching retirement age, a financial advisor can help you build a plan.

Retirement survey results

In 2019, the same Schwab survey found that 401(k) participants had a retirement savings goal of $1.7 million. That target has since increased, as has investor confidence in achieving their goals. More than half (53%) of survey participants said they are likely to meet their retirement goals, up 16% from a year ago when the COVID-19 pandemic unleashed massive economic turmoil and uncertainty.

“We have experienced tremendous stress in our work and home lives over the past year which has highlighted the importance of financial well-being and the value of trusted advice,” Catherine Golladay, head of Schwab Workplace Financial Services, said in a statement.

But 401(k) plan participants say they still face numerous challenges. In fact, 61% said they need the kind of professional advice a financial advisor can provide, including help calculating a retirement savings goal, investing, creating retirement income, and planning for retirement taxes.

How to Save $1.9 Million for Retirement

A recent study found that 401(k) participants believe they need $1.9 million saved up for retirement.

A recent study found that 401(k) participants believe they need $1.9 million saved up for retirement.

While the prospect of having $1.9 saved up before retirement seems daunting, saving early and often will increase your chances of achieving that goal. Tax-advantaged accounts like 401(k)s and 403(b)s, which are offered through employers, can help you build a nest egg over the years. While annual contributions to these types of plans are capped at $19,500 in 2021 (with a $6,500 recovery allowed for people age 50 and older), those saving for retirement can also contribute $6,000 ( $7,000 if you’re over 50) to an Individual Retirement Account (IRA) each year. Those saving for retirement may also want to explore whether a Roth IRA mega backdoor is appropriate for them.

Every three years, the Federal Reserve reviews changes in US household finances, including how much people have saved into retirement accounts at various points in their lives. Using data from the Federal Reserve’s 2019 Consumer Finance Survey, Boston College’s Center for Retirement Research calculated average retirement savings across different age groups:

  • Median 401(k)/IRA balance for ages 35-44: $51,000

  • Median 401(k)/IRA balance for ages 45-54: $90,000

  • Median 401(k)/IRA balance for ages 55-64: $120,000

Here’s how much someone with the average 401(k)/IRA balance at ages 35, 45, and 55 would need to save total each month to reach the $1.9 million mark by age 65 (these projections assume a 8% annual rate of return):

Build a $1.9 million nest egg Balance age 401(k)/IRA Monthly savings Retirement savings at age 65 35 $51,000 $900 $1,899,046 45 $90,000 $2,475 $1,901,238 55 $120,000 $8,930 $1,900 .065

A 35-year-old who has already saved $51,000 for retirement is clearly in the best position and would need to shell out $900 a month over the next 30 years to nearly hit the $1.9 million mark. Older workers are expected to save significantly more each month. A 45-year-old with $90,000 saved up needs to cash in $2,475 a month to eclipse the $1.9 million threshold at age 65. Meanwhile, a 55-year-old with $120,000 saved up would need to make a serious recovery and save nearly $9,000 per month to reach their goal within 10 years.

Bottom line

A recent study found that 401(k) plan participants believe they need $1.9 million in retirement savings.

A recent study found that 401(k) plan participants believe they need $1.9 million in retirement savings.

A million dollars is not what it used to be. It was once thought to be a cornerstone of retirement savings, but 401(k) plan participants now believe they’ll need nearly double that, according to a Schwab Workplace Financial Services survey. Building such a large nest egg will likely take time and planning, emphasizing the importance of saving for retirement in your 20s and 30s.

Retirement saving tips

  • SmartAsset has a variety of tools that can help you plan for retirement. Our 401(k) calculator can show you how much your account will be worth when you retire. In the meantime, our retirement calculator can help you determine if you’re on track to meet your retirement goals.

  • Need help managing your investments? How about planning for retirement income? A financial advisor can help you with a myriad of money needs, and finding one in your area doesn’t have to be difficult. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors serving your area, and you can interview your advisors at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you reach your financial goals, get started now.

  • Don’t forget to contribute to your 401(k) through your company’s 401(k), if available. Otherwise, like a third of Americans, you leave free money on the table.

Photo credit: ©iStock.com/izusek, ©iStock.com/iChainarong Prasertthai, ©iStock.com/Piotrekswat

The post 401(k) Plan Participants Say They Have to Save So Much to Retire first appeared on the SmartAsset Blog.

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