Are your retirement savings ahead of the curve?

It is difficult to determine exactly how much to save for retirement. Some people choose a round number, like saving 10% or 15% of their salary, while others use an external index, like the amount of money that will be matched by an employer.

You may be wondering if you are saving enough to fund the lifestyle you desire in retirement. “At the end of the day, what income do you think you need to replace year after year to pay for your retirement lifestyle? Says Charlie Bolognino, a certified financial planner at Side-by-Side Financial Planning in Plymouth, Minnesota. “Remember to budget for daily expenses, annual health care costs, and recurring purchases, such as car replacements. ”

Here are some benchmarks that will help you understand if you are on the right track to building a substantial retirement nest egg.

Consider the average 401 (k) balance by age

The average 401 (k) savings rate was 7% of salary in 2020, according to Vanguard 401 (k) data. The average 401 (k) account balance is $ 129,157. However, the amount that an average person is able to save and accumulate increases dramatically with age.

“The amounts they need to save will vary widely… financial planner and founder of Prana Wealth in Atlanta. “If you’re having trouble deciding which retirement (savings rate) is realistic for you, start by saving 10% of your income.

Check if you beat the 401 (k) averages for your age group:

Under 25

Average 401 (k) account balance: $ 6,718

Average savings rate 401 (k): 5%

25 to 34 years old

Average 401 (k) account balance: $ 33,272

Average 401 (k) savings rate: 6.3%

35 to 44 years old

Average 401 (k) account balance: $ 86,582

Average 401 (k) savings rate: 6.7%

Average 401 (k) account balance: $ 161,079

Average 401 (k) savings rate: 7.4%

Average 401 (k) account balance: $ 232,379

Average 401 (k) savings rate: 8.7%

Average 401 (k) account balance: $ 255,151

Average 401 (k) savings rate: 9.2%

[ Read:New 401(k) Contribution Limits for 2021. ]

Aim to maximize your 401 (k)

A retirement goal worth reaching is to maximize your 401 (k) diet. The 401 (k) contribution limit is $ 20,500 in 2022. Workers aged 50 and over can make catch-up contributions of up to an additional $ 6,500 for a maximum contribution of $ 27,000 in 2022. Funding your 401 (k) fully allows you to get the best possible tax deduction on the money you save for retirement. Your traditional 401 (k) contributions will not be taxed until they are removed from the account.

However, only 12% of 401 (k) participants reached their maximum 401 (k) in 2020, according to a Vanguard analysis of 1,700 401 (k) plans with 4.7 million participants. Most people who max their 401 (k) earn over $ 150,000 per year and also tend to have more years of work and be closer to retirement age.

Unsurprisingly, it’s easier to save for retirement if you earn a big salary. Those earning $ 150,000 or more had an average 401 (k) account balance of $ 354,569, more than double the average of $ 121,570 saved by those earning $ 75,000 to $ 99,999, Vanguard found.

“Start small and increase your contribution by 1% to 2% each year until you hit the maximum,” says Kayse Kress, certified financial planner at Physician Wealth Services in San Diego. “Always make sure you contribute enough to benefit if your employer also provides a matching contribution. “

[Read:A Guide to 401(k) Vesting. ]

Strive To Reach $ 1 Million In 401 (k) Savings

Since 401 (k) contributions are limited each year, it takes decades of diligent savings and solid returns on investment to build a large retirement account balance. Those who save regularly for many years are often able to accumulate impressive retirement account balances. For example, those who have worked for 15 years or more have an average 401 (k) account balance of $ 505,353, which is four times the average balance of $ 126,083 among all 401 (k) participants in 2021, based on an analysis of 23,700 Fidelity professional retirement accounts with 20.2 million members.

On the other hand, workers who change jobs may leave a small balance in their old 401 (k) plan or transfer their retirement savings to an IRA, so job seekers often don’t have all of their wealth in a single 401 (k). Gaps in employment, an interruption in saving for retirement, and waiting periods to join a new employer’s 401 (k) plan also result in smaller account balances.

[Read:How Much Should You Contribute to a 401(k)? ]

Don’t forget to make catch-up contributions

Workers aged 50 and over are eligible for make catch-up contributions to 401 (k) plans up to $ 6,500 more than younger employees. A catch-up contribution involves saving between $ 20,500 and $ 27,000 in your 401 (k) plan in 2022. However, only 14.3% of eligible 401 (k) participants made catch-up contributions in 2020, according to a retirement plan from T. Rowe Price. Service analysis of 674 401 (k) plans with over 2 million participants.

Older 401 (k) participants often increase their savings rate as retirement approaches, T. Rowe Price discovered. “Set your own parameters to determine when you will increase your savings rates,” says Jared Paul, certified financial planner and founder of Capable Wealth in Albany, New York. “The easiest time to do that is when you get a promotion or a raise. You are going to have more money than you are used to, so you obviously have some extra money to save.

More American News

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Are your retirement savings ahead of the curve? originally appeared on usnews.com

Update 11/23/21: This story was posted at an earlier date and has been updated with new information.