While younger people who are just starting out may think they don’t have to worry about retirement saving until later in life, the sooner you start saving for retirement, the better.
If your company offers a 401 (k) plan, this can be an easy way to start saving for the future, even if you’re starting small. Not only are the contributions from your 401 (k) excluded from your taxable income, but if your company offers a match, you basically get free money too.
For many Americans, 2020 was a difficult year financially. Between March 2020 and January 2021, approximately 1.6 million individuals took savings from their 401 (k) plans under the CARES law, allowing those affected by the pandemic to withdraw up to $ 100,000 without the usual early retirement penalty, according to pension plan provider Fidelity. That represents 6.3% of eligible individuals using Fidelity’s savings platform.
Yet despite the 401 (k) account withdrawals under the CARES law, a third of 401 (k) savers increased their savings rate in 2020. Fidelity also saw record female contributions in the fourth quarter of 2020.
The total average balance of 401 (k) was $ 121,500 as of the fourth quarter of 2020, according to Fidelity.
How much money have Americans in every age group saved?
Fidelity also gave CNBC Make It a look at how much money Americans have in their 401 (k) s at any age.
Below, see the average amount Americans have saved on their Fidelity accounts as of the fourth quarter of 2020, as well as how much their contributions are in relation to their salaries.
How much you need to save for retirement
You should think of plans for retirement as something you do throughout your career, not just when you have a high salary.
“The most important thing is to start saving as early as possible and consistently because that’s really what builds your balance when you retire,” said Eliza Badeau, vice president of thought leadership at Fidelity.
While retirement may seem a long way off, it’s better to start saving early because then you can overcome the highs and lows of the market, Badeau says.
Fidelity recommends getting rid of 10 times your salary by the time you retire. To get there, the company recommends saving 15% of your income consistently, including both your employee contribution and the employer match.
“Start by saving what you can from your salary and at least, if you get a matching contribution, contribute enough to get that match, so you don’t leave any money on the table,” says Badeau.
Even if you start small, try to increase your contribution in small increments to get to 15% of your salary, Badeau says.
How much emergency money you should have on hand
In addition to saving for retirement, it’s also important to keep your finances stable from a short-term perspective so you don’t have to dive back into money you’ve been putting away for the long term, Badeau says.
Aim to save three to six months of living in a liquid cash account. You should see that as an emergency fund to keep you afloat should you lose your job, Badeau says.
It may seem overwhelming trying to save so much at once, but it’s okay to start small. Set achievable goals by saving one month at a time and ultimately work towards the balance you want.
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