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Retirement savings recovering

By Jennie L. Phipps · Bankrate.com
Wednesday, February 23, 2011
Posted: 3 pm ET

It might feel scary, but continuing to save steadily in a 401(k) even when the market sours is the smartest approach.

Fidelity Investments, the nation's largest provider of workplace retirement savings plans, reported yesterday that despite the 2008 market downturn, 401(k) balances reached a 10-year high at the end of 2010.

The average 401(k) account balance rose to $71,500 at the end of 2010. The average account balance for participants who saved continuously for the previous 10 years increased to $183,100 at the end of last year from $59,100 at the end of the fourth quarter 2000. The average participant saved 8.2 percent of his income. That doesn't include employer matches, which are typically 50 percent of employee contributions up to 6 percent saved, Fidelity says.

For the sake of retirement planning comparison, here is, as of Dec. 31, 2010, the average amount participants in 401(k) plans offered through Fidelity have accumulated at key age ranges:

  • 20-24: $3,500
  • 25-29: $11,700
  • 30-34: $25,300
  • 35-39: $42,500
  • 40-44: $59,900
  • 45-49: $81,100
  • 50-54: $105,400
  • 55-59: $122,400
  • 60-64: $120,600
  • 65-69: $122,900
  • 70+: $96,700

How much does that translate to in terms of retirement income? Insurer Mutual of Omaha estimates that a man who turned 62 this year and spent $122,000 on an immediate annuity would receive $723 per month for life. Your mileage might vary, but for many people that's enough to significantly augment Social Security, pay the rent and keep the lights on.

An increasing number of insurance and financial planning companies are offering advice and programs that help soon-to-be retirees structure a way to spend their 401(k) savings over the course of their retirements. Fidelity has recently launched such a service, and Financial Engines contracts with employers to to provide this kind of advice. If you work for a large employer, this service is likely to be one of your employee benefits. It's worth calling HR and asking.

No matter who you turn to for advice, a good first step is to figure out how much money you're spending now and how much you anticipate you'll need once you retire. Bankrate has a good home budget calculator for doing that. Once you've figured that out, use this calculator to estimate whether the amount you're saving is anywhere close to enough. This kind of math can be discouraging, but eventually you'll regret it if you just bury your head in the sand.

Unfortunately, saving for retirement isn't an exact science, but saving more is almost always better than saving less.

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4 Comments
Frankie
March 07, 2011 at 9:57 am

Have to side with the lady who needed to retire before age 65. Her situation is far more common than you think, especially in NYC. Before you support trashing SS for age 62, refer to a Forbes article several yrs ago that detailed how as you pass age 50 your income reduces, then nosedives as you approach 65. You're almost back where you started. Regardless of expert skills, and a youthful appearance and outlook, for even a part-time job later in life you take a hit both financially and in attitudes of those hiring, not to mention younger co-workers. Of course, as the lady you wrote abt on Dec 25th, you may not feel the same as you did physically even 10 years before. An unfortunate result of ageism is that many older semi-retireds find a way to go on SS Disability. That's hardly cost effective, is it.

Dora
February 24, 2011 at 2:03 pm

Jeannie, I really appreciate this daily column. It is one of the first things I check when I turn on my computer in the morning. My husband and I are approaching 60, and I get a lot of good information from your column. Thank you. Today's column is really helpful, in addition to your savings message, it provides the link to calculate the monthly expenses budget, which will help me see if we are on track with our savings for retire life. And, I am saving as much as I can. Thanks!

Adam
February 24, 2011 at 7:13 am

I am 35 years old and my goal is to save at least 3 Million dollars before I retire, but we will probably need more. I regularly read this website and I have never before seen a article suggest that saving $122,000 for retirement would be adequate, even in today's dollars, to augment social security. I am not an expert, you are, but I'm just saying I've never seen such a suggestion before.