Pod Insights Money Guy Show Average 401k Balance By Age (2026 Edition) About this episode Have you ever wondered how much the average American has in their 401k? We've done the research and we've found the answers! Don't miss this breakdown into the data accompanied with the tips to help make sure you are ahead of the curve moving forward. Plus, we add in our Money Guy Markers to help you track your personal financial journey throughout every decade!
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Brian Preston? Hip hip hooray. It's 401ks and on this show, we're breaking it down by age.
0:05 Speaker 01 Brent, I am so excited because today we're going to take a look at one of America's favorite accounts, the 401k. We're going to find out just how much Americans actually have saved in these wealth building machines.
0:16 Brian Preston? So I'm Brent, he's Bo, and we're financial advisors here to give you the 411 on 401ks. With that, let's dive right in.
0:29 Speaker 01 Yeah, if you've watched any of our content for any amount of time, you know that we absolutely love 401k accounts. They're one of the most powerful tools in your wealth building arsenal. And most millionaires, when they hit that seven-figure status, when they hit the two comma club, it often happens inside their 401k account.
0:48 Brian Preston? I think it's important to understand, this is not all fluff. We need you to know why we absolutely love 401ks. Look, there's a lot of mathematics and things that are going for this, including these things are tax advantage. If you think about the fact that you get to put money in, if you're using the Roth, it grows completely tax-free. How about that?
1:06 Speaker 01 Yep.
1:07 Brian Preston? If you're using traditional, you get a tax deduction right now and then it grows tax-deferred. This is powerful.
1:13 Speaker 01 Yeah, the second mathematical advantage is that there is an employer match oftentimes.
1:17 Brian Preston? Get that free money.
1:19 Speaker 01 That's right. It is free money that your employer is willing to put in. So there are obviously mathematical reasons why we love 401ks, but there are also behavioral reasons why we love 401ks.
1:28 Brian Preston? Yeah, I like the automation. It makes it automatic for the people. Meaning if you're trying to set it and forget it and just make the easy habits, the good habits as easy as possible, this is going to be your friend.
1:38 Speaker 01 Yeah, one of the ways that they work is you get to pay yourself first. You just tell your employer, tell your payroll company, hey, every paycheck, I want X dollars or X percent of my pay to go into my 401k before it ever even hits my account. It's a really good way to set up automated savings.
1:53 Brian Preston? And if you're looking for a way to kind of have a shock absorber for volatility, we love that 401ks make it kind of buy and hold. It makes it really difficult to kind of get in there and do emotional trading because you're just kind of staying the course since you can't touch these assets for decades. In the future, it really can be a counterweight to all the emotional stuff. And I love that it's also always be buying even into that volatility.
2:18 Speaker 01 Yeah, and I love what you said, if you can let it work for decades, because the earlier you figure this out, the more powerful it can be. You've seen us talk about this before. The younger that you can start saving, the younger you can start investing, the less work you actually have to do. If a 20 year old starts saving and they save $95 per month, every month for their entire working career, by the time that they get to age 65, they will have a million dollars saved up. But do you recognize that of that million dollars, 95% of it is growth. 95% of it was the money working harder than the 20 year old had to work.
2:52 Brian Preston? And a lot of people are gonna say, wait a minute, nobody is doing this when they're 20 years old. I didn't do it when I was 20. I don't know if you had started saving and investing at 20.
3:00 Speaker 01 I had, but you know, there's always exceptions.
3:01 Brian Preston? That was always the exception. But, but look at this, seriously, if you're looking at this chart, and even if you're listening to the podcast version of this, for a 30 year old, 89% of your account has the opportunity to be the growth. For a 40 year old, 77% of the growth. Even for somebody my age in their 50s, 55% of your account still has the opportunity to be the growth, not just your contributions.
3:25 Speaker 01 Okay, but if it's such a powerful tool, the question then becomes, okay, well, how do I make the most of it? What do I invest in? How much should I have saved in mine? And I think one of the questions, it's always a burning question is, what's everyone else doing? How does everyone else's 401k look? And that's exactly what we want to unpack for you today. But maybe you're sitting there, you're thinking, oh gosh, oh gosh, I'm just gonna have to turn this one off. I don't have access to a 401k. That's okay. What we're gonna talk about today can be applied across all of your financial accounts, because maybe you're someone out there, you have access to something like a 403B, or a 457, or maybe you're a government worker who has access to the Thrift Savings Plan, or maybe you're just an entrepreneur who's able to fund and put money in a solo 401k.
4:10 Speaker 01 Even if one of these describes you, listen up, because today's show is for you.
4:16 Brian Preston? Yeah, I want to make sure everybody knows, a lot of the behaviors and a A lot of the mathematical setups of the tax advantage and other things, they can appeal to these other accounts too. So lean in, let's go ahead and figure out how do we maximize this golden opportunity for you to build wealth for the future?
4:32 Speaker 01 So let's start at the very beginning, Brian. Let's start with folks in their twenties. And every year we do this research and we know that right now, if we just look at average 401k balance by age for those in their twenties, the average 401k for a 20 year old who actually has a 401k is about $5,000. The average 401k balance for a 25 year old is just a touch under $18,000. And the average 401k for someone who is 30 years old in this country right now is just over $37,100.
5:05 Brian Preston? Well, this is the point because to answer the question on how much you need, we've kind of, we'll, we'll back into that math. But I think it's important to say this show is going to be focused on 401ks. And a lot of you already have caught the memo that this is a big part of the wealth building journey. So much so that 57% of Americans, that this is where they don't report having any money outside of 401ks. Meaning that if your employer didn't have a plan, you have absolutely nothing going on. I'm here to tell you, you're going to need the 401k. It does a lot of the heavy lifting, but you're going to need more. You're going to need the Roth IRAs, you're going to be saving in after tax accounts. We want you to be thinking big picture on the money you need for the future.
5:43 Speaker 01 So even though we're going to share with you average 401k balances of your peers, when it comes to how much you have saved, we want you thinking about your entire portfolio. And so one of the questions that you likely have is, okay, well, how much do I need based on my age? Where should I be? Well, don't worry. We actually break down the math for you. We know that by the time that you get to age 30, we want you to have one times your annual salary saved up. But by the time you get to financial independence, all the way out at age 65, if you want to truly be financially independent, we want you to aim for having a 20 times your annual salary saved up. So if you can start at one time by 30 and end up at 20 by 65,
6:26 Speaker 01 what we want to fill in is, okay, well, what are the things that I ought to be doing along? The way and just like your money can compound and grow so too does the number you need to hit for financial independence. So the earlier you start, the easier it becomes. So if you are that person in your twenties and we said, okay, where should you be? What should you shoot for? Right now, we know that the median income across individuals in this country, this is not household. This is individual median income is right at $41,000. So if the goal is to have one time, the median income saved up by the end of this decade at 30, you should have 41,392 if you are a median income earning American.
7:10 Brian Preston? Yeah, I think this is fascinating to me is because you can see, look, we understand most people, it's, it's, you get a gold star if you even start saving and investing in your twenties. Yep. For a lot of Americans, you're just too busy with life and education and other things. It doesn't even happen. But look how great it is, is that if you look at the average balance of 401ks versus the one time income that we've actually put into this analysis.
7:37 Speaker 01 It's pretty close.
7:37 Brian Preston? There's not too much separation. So I'm happy to report. Now, look, I wish I could say this continues on for the 40s, 50s and beyond. But this is why for the majority of you who discover our content, this is a golden opportunity for you to let your money work harder than you can, than your back, your brain and your hands.
7:56 Speaker 01 Okay. So what should you focus on in your twenties? Well, in your twenties, we really want you getting the behavior right. If you can master behavior in your twenties, that's going to be the fuel that fuels your financial building engine all through your 30s, 40s and 50s. And one of the very first things, and if you can figure this out early on, you've mastered the first ingredient of wealth creation. If you can figure out how to live below your means, spend less than you make, you're already well ahead of your peers.
8:24 Brian Preston? Well, you have to be disciplined and that's, living below your means is the first indicator that you're disciplined. The second one is you keep debt under control.
8:33 Speaker 01 That's right.
8:34 Brian Preston? I get it. In your twenties, you're not in your peak earning years. You have all these things that come at you between. Cars, you know, living out on your own for the first time and you're like, you know what? The, the thing that will solve all my problems is my lack of cash flow right now is debt. Is because they give you these credit cards, they give you things where it seems like it solves everything. I'm telling you, stay out of debt as long as you possible. It really is not the bridge or the solution you think it is. It's actually going to be the bridge to nowhere. It's better to, don't fake it until you make it. Let's actually build up, live responsibly, be disciplined. There will be a time and place to actually get all the rewards, but the first thing is just keep that financial footprint as small as possible so that we can create margin that lets the money get invested.
9:16 Speaker 01 Yeah. The other thing we want you really thinking about in your twenties, especially as it relates to keeping that footprint as small as possible, is measure twice, cut once on the large purchases. In your twenties, just because you can do something, just because, oh, they'll let me borrow money for this car, or I can go on that European vacation, or I can buy that house, doesn't necessarily mean it's the right decision for you. Whether it be consumption decisions, or even things like going back to school and getting a master's degree and taking out student loans, recognize that the decisions you make in your twenties can have a long tail with you into your thirties and forties. So make sure you're making those decisions wisely.
9:54 Brian Preston? Start saving and investing, guys. We don't care how small it is. Little things can have huge results. If you want to get motivated, go check out our wealth multiplier. But a lot of you, I think, are struggling, even if you know your wealth multiplier. Where am I going to find the margin?
10:09 Speaker 01 Yeah, a great way to keep track of your progress as you're doing all of these things is using Monarch, who's the sponsor of today's video.
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11:32 Speaker 01 That's 50% off your first year at monarch.com with code MONEYGUY. Okay, so then, once you find that margin, once you've able to figure out where are my dollars, now you get to start thinking, okay, I want to start using that margin, putting money into my 401k, taking advantage of this amazing wealth building, wealth building tool. And so one of the questions you might have is, what do I need to know? What are the terms, what things I need to be familiar with with my 401k? And we think there are three big ones you ought to be thinking about. It's who's going to put money in there, your match? What are you going to do with your money, how much and where? And then how do you invest those dollars? What actually happens when you put them to work?
12:10 Brian Preston? Yeah, so let's talk, let's jump into each one of these, specifically your match. Guys, that is, you got to get in there and get that free money. If you want to know how to really amp up what's going on with your wealth building journey, free money, there's a reason this is number two of your financial order of operations.
12:26 Speaker 01 Yeah, and if you look right now, the average employer contribution across this country, according to Fidelity's fourth quarter study, is 4.7%. So the employer is putting almost 5% into your 401k, which in a lot of circumstances, you have to show up to get it. So one, you want to know if there's a match. And the second question you have to answer is, okay, well, what types of matches are there? What types of employer money might be going into my plan?
12:53 Brian Preston? A lot of these are structured dollar for dollar, 50 cents on the dollar. The, the big part is, is you need to go read what is going on, what do you have to do? And then maximize to get that free money.
13:03 Speaker 01 Yeah, so there are matching contributions where you put in a certain amount and then your employer will put that amount in. But then there's another Type of contribution called a non elective where you don't have to put any money in and your employer will put money in oftentimes this is you do nothing and your employer puts in 3% and then there's even another type of money that can go into your plan called profit sharing. This is where the employer says, hey, based on how the company's doing, based on how our books look, we're actually going to do an additional contribution into your plan on your behalf. So there are three different ways that your employer could be putting money into your 401k for you.
13:41 Brian Preston? So we covered matching first, but you know, usually to get some of that matching, you've got to put in your contributions and there's really two big decisions you have to make with your personal contributions is how much can you actually put into the 401k? What do you have? What's the margin that you have? And then actually, where are the contributions going? What are the choices you're making on the investments?
14:02 Speaker 01 Now, I got really excited, Brian, as we were putting together the show because do you recognize that the average contribution rate across a contribution rate across all 401ks is 14.2%?
14:11 Brian Preston? That sounds great.
14:12 Speaker 01 Oh my gosh, that's incredible.
14:13 Brian Preston? There's a lot of systems that say 10 or 15% is all you need to do.
14:17 Speaker 01 But we had to stop the presses because that 14.2% actually includes the employer match. And we know if on average the employer match is about 4.7%, that means that the average contribution rate is probably less than 10%. So most 401k participants are saving less than 10%. You've heard us say our goal, especially if you're going to include the employer match, we want you saving 25% of your gross income. So there's still a pretty wide chasm we have to close there.
14:45 Brian Preston? Well, it's even worse than that. Yes, we know that it looks like our employer is doing a lot of the heavy lift, but when you find out how leaky 401ks are, if you think about from the time the money goes in to by the time people are needing to pull this money out for retirement, it breaks my heart to hear that 40 cents out of every dollar disappears due to premature early withdrawals from 401k. So a lot of people are when they change jobs, they're or they have hardships or other things. And the definition of hardship, look, we're not against people understanding this is a break glass. You have problems. It's just, I would make sure you understand that a hardship is a true hardship because. The hardship, if you're not being serious about that question, might be the hardship you have when you cross that retirement threshold.
15:28 Speaker 01 All right. So there are two pieces of not great news. Savings rates are a little bit low and the 401ks are leaky. Let's give you a piece of good news, though. Thirty-eight point four percent of folks over the last year increased their 401k saving percentage. That's a good sign that we're moving in the right direction. Now, this isn't necessarily for everybody. There's a reason we have, Brian, we go to the financial order of operations. If you're someone who's still struggling with high interest debt, or you don't have a fully funded emergency fund, yes, we want you going out there and getting that employer match. We want you doing step two, but we don't actually want you putting more money into the 401k until you've paid off that high interest debt. You've got the fully funded emergency fund.
16:10 Speaker 01 You've taken advantage of the tax-free accounts like the Roth IRAs and the HSAs. And then when you have excess margin above and beyond that point, that's when we want you to begin increasing your 401k contribution.
16:20 Brian Preston? And look, we take some flak because our goal is to try to get you to 25%. I realize that 25% does include the employer match, as long as your income is under 200,000 for married couples, 100,000 for single individuals, more to come on that. But I just want to encourage you, look, we understand in your twenties, this is aspirational. If I would even, if maybe you start out when you're in your mid twenties at 5% and then you try to add a percent every year, or maybe you're a person that every time you get a pay raise, you try to give 60% of that pay raise to additional contributions to your 401k, and the other 40% can go to lifestyle. Just do something. Start small so your army of dollar bills can start building in the background.
17:00 Speaker 01 Now, remember, there were three things. It's, okay, who can put money into the accounts? What do I need to know about the accounts? And the third thing is, what do the accounts do? What do my investments do? Make sure when you're putting money in your 401k, you recognize there is one additional step. You actually have to invest those dollars. Far too often, we see people say, okay, I did it. I signed up my 401k. We're like, great, what are you investing in? And they kind of look with a blank stare. Oh, I don't know. If you don't make selections inside your 401k, a lot of times it would just go to the plans. Default investment option. Well, for a lot of plans, that default investment option is a stable value fund or a money market fund. Well, now, instead of you having the wealth multiplier,
17:41 Speaker 01 where for a 20-year-old, every $1 can turn into $88, if you just have it sitting in a money market inside of your 401k over that same time period, that $1 might only turn into $3. That is a very, very different thing. So make sure you understand where your money is being invested inside of your 401k.
17:59 Brian Preston? Yeah, this one breaks my heart is because just you talked about the wealth multiplier, but people also just understand that when you're young and you're decades from retirement, it's okay to take some aggressive risk is because what feels risky in the short term can actually be really good for you in the long term because you're letting that compounding growth, the volatility gets smoothed out by the time horizon that you have. Don't sleep on that. Too many people, I think, when they're young and they have decades, go way too conservative and you need to be very mindful of that when you're considering your investments.
18:32 Speaker 01 All right, Brian. Now, let's move from the 20s into the 30s. When we look at average 401k balances, again, this is according to Fidelity, for a 30-year-old, remember, the average 401k balance in this country right now is about $37,100. By the time we get to 35, the average 401k balance is a little over $63,000. And then by 40, the average 401k balance is just under six figures at $97,164.
18:59 Brian Preston? Okay, this is important. These are all 401k balances, but how much should you have, or what do you need to be successful on this journey to getting 20 times your income by retirement?
19:10 Speaker 01 So remember, we wanted one times our annual income by 30. So by the time we get to 40, we want to have three times our annual income. So again, if we're thinking about the median income, the median individual income in this country right now is $59,800. So by the time you get to 40, we want you to have three times that amount. So if you think about the average 401k balance relative to where your portfolio value should be in total, if you're a median income-earning American.
19:42 Speaker 01 Now you're beginning to see some disparity. You're beginning to see some spread. At age 30, it's not all that close. There's about a $4,000, $3,000, $4,000 difference. But by 35, average 401k balance is $63,000. We want you to have $101,000. By age 40, average 401k balance is $97,000. We actually want you to be at $179,000 if you're a median earning, immediate income earning American.
20:08 Brian Preston? Guys, did you hear that? I mean, there's a lot that just happened between the age of 30 and 40 is just statistically, most Americans are pretty close to where they need to be. And that's, that's probably because the, the 401k and the employer match is covering a lot of ground when you're in that early twenties to right there at the 30 age. But between 30 and 40, you start seeing a separation there where you better have more assets outside of just your 401k. You better be funding the Roth, you know, your Roth IRAs. You better be funding your after-tax accounts. Get serious about this because what we want to show you now, look, I gave you, this is the tough love treatment where I'm saying, make sure you have assets outside of the 401k. But don't get overwhelmed because if you do this right, remember, early and often is your friend.
20:53 Brian Preston? If you do this right, the money will start doing the heavy lift for you by growing upon itself.
21:00 Speaker 01 Yeah, if you were where you were supposed to be at age 30, just that $41,392 that you had at 30 will grow over this decade to be about $96,553. Remember, your goal is to get to 179. So just the money that you had saved up until 30 will do about 54% or half of the heavy lifting for you. So you got to figure out, how do I bridge the gap? How do I make up that difference? And maybe you're someone who's saying, well, guess what, guys? I'm not there. I didn't start 30s with $41,000. I'm just now coming out of the starting blocks? That's okay. We know that according to Charles Schwab, the average American doesn't begin investing until age 30. That's all right. You're still early.
21:45 Speaker 01 You still have time, but now you have to take it seriously.
21:49 Brian Preston? Yeah, this is the, look, for the twenties. It's hard to screw it up. If you just do anything in your twenties, you're gonna be A-OK. But thirties, you still have a great wealth multiplier. You still have a lot of time on your side, but you do need to get very serious. And here's what, we want to go ahead and fine tune, what do you need to focus on? The first thing is, let's optimize what's going on, you know, because we're trying to get you to 25% savings rate as fast as possible, because we need that army of dollar bills to do the heavy lift for you.
22:18 Speaker 01 If you can get there, the odds are, you're gonna give yourself maximum flexibility in the future. So, the earlier and sooner you can get to 25%, the more flexibility, the more slack that you're gonna have in the system. Another thing we want you thinking about, in your thirties, as you're thinking around optimization is, okay, I was always doing Roth, I was always doing Roth, I was always doing Roth, when it came to my 401k contributions, but now, perhaps my income has increased, I'm in a different tax bracket than I was in my twenties, does it still make sense for me to be doing Roth contributions? Or, should I potentially switch to doing pre-tax contributions?
22:52 Brian Preston? I know, you know, one of the things I always think about when I'm trying to motivate people on saving and investing is, guys, if you do this early enough, you'll have more flexibility and options later. Because I get it, life happens, maybe something happens in your 40s or 50s, and you get forced to retire sooner. If you can get to that 25% that much sooner, you're going to have more flexibility, more options. Don't sleep on that, having that slack in the system for the future. But I'd also like to talk about vesting schedules, because it's not only, look, especially if your employer is very generous with the profit sharing, a lot of times, you don't get to keep that unless you stay there long enough. Work out, how does vesting schedule work? And what do you get to keep? What do you not get to keep? So people can think about that when they're deciding whether to stay or leave.
23:36 Speaker 01 Yeah, basically, the employer says to you, hey, we're gonna put money in your account, we're gonna do our part, but there's something that you have to do. You have to be here for a certain amount of time before that money becomes yours. And so there are a few different ways that vesting schedules go out. So if you're someone who has a safe harbor contribution, and you look at your plan document, and the employer says, hey, we have safe harbor 401k contributions, the odds are that those contributions are gonna be a 100% vested, or if there is a vesting schedule, it won't be any more than two years. So that's money you can take with you. Any money that you put into the plan, any of your salary deferrals, that money also always goes with you. So if you've only been the employer for a year and you put your money in there, when you leave, you get to take that with you.
24:19 Speaker 01 But you may have some sort of employer contribution that has what's called a cliff vest. And this basically says, okay, we're going to stretch out the timeline a little bit longer. You've got to be here for three years, but once you've been here for three years, then you'll have access to 100% of your funds. Whatever you've earned, whatever the employer's put in for you, you get to take that with you. Or you might see inside your plan documents, something called grade investing. And the way the grade investing works is you slowly unlock a different percentage over time, usually over the course of about six years, that it goes from 0% to 20 to 40 to 60, all the way up to 100%. You just want to make sure if you're thinking about changing jobs or you're thinking about changing employers,
25:02 Speaker 01 you understand, okay, where am I on my vesting schedule? We would hate for you to leave a job or make a change a week, a month, a quarter early, when you could have stayed just a little bit longer to unlock those additional dollars inside your time.
25:17 Brian Preston? And not to get too into the weeds, but even finding out if you have what's called a last day provision. Because a lot of people, as long as you can work six months, you might qualify for the enough thousand hours of service that you get that year. But if there's a last day provision, you might want to wait to leave to putting your notice until after you've fully vested that additional year. Don't sleep on this, and then it's worth repeating. What sits on top of all this, whatever you put into the plan, you get to keep no matter what. I don't want you to mishear us with all this talk about safe harbors, vesting and so forth. Your contributions are yours to take with you. This is just what strings are attached to what the employer is putting in on your behalf.
25:58 Speaker 01 All right, Brian, so we've talked about the twenties, we've talked about the thirties. Now let's jump into the forties. Now, as you would expect, as we get into the forties, the 401k balances start increasing a little bit. Remember at age 40, the average 401k balance across a
26:11 Speaker 01 Forty year old right now is about ninety seven thousand dollars. Average 401k balance for a forty five year old is about a hundred and thirty nine thousand. And the average 401k balance for a fifty year old in this country right now is a little over one hundred and ninety thousand dollars.
26:26 Brian Preston? Okay, but how does this compare to the median incomes and what people will actually need to have a successful retirement?
26:31 Speaker 01 All right, so we're start, remember, we started at age thirty at one times our annual salary. By sixty five, we want to get to twenty times. So the first stop was age forty. We want to be at three times our annual salary. By the time we get to fifty, by the time we get to the end of the forties decade, we want to be at six point four times. Well, if we think about the median income for folks in their forties, it's right around seventy two thousand dollars a year. So if I'm a median income earner in this country, by the time I get to the end of my forties, at age fifty, I should have a total portfolio value across my 401k taxable accounts, IRAs, all those accounts of about four hundred and sixty one thousand dollars.
27:13 Speaker 01 Remember, the average 401k balance for someone that age was one ninety. So again, we're seeing a wider and wider and wider chasm beginning to build.
27:20 Brian Preston? Yeah, this is, this is the part that, guys, do you see how this builds on itself? You know, if you look back, because a lot of you are going to be in your twenties and thirties and you're watching this to see what happens in your forties and fifties. This is important is because early and often is where you get the traction, where the money starts working for you. This doesn't mean that if you're watching this for the first time in your forties and you're saying, well, what do I do? You still have a lot of control for compounding growth to work for you. It's just, but more and more, the more you delay the decision of investing, the more the weight falls on your shoulders. So guys, make sure that you're building up assets outside of not just the 401ks, but those Roth IRAs, those after tax savings accounts, anywhere that you can actually start building money for the future.
28:04 Brian Preston? Your future self will be just sloppy happy if you make those good decisions.
28:09 Speaker 01 Now, I had a coach, Brian, that used to always tell him, hey, if you want to do something, if you do it right, you get to do it light. If you do it wrong, you got to do it long. And building wealth is no different because if you've been doing the right things in your twenties and your thirties, you've been kind of hitting the mile mark. As we're showing, do you recognize that if you were that financial mute that had $179,000 saved up by age 40, that just that pot of money alone will grow to $379,000 by age 50 over this next decade? That's 82% of the way towards your 460 goal. As you can see, not only are the dollars compounding, all your decisions compounding, but the work that you did early on in your financial life is beginning to compound.
28:53 Speaker 01 If you can figure this out early, you can start making those good decisions early, your journey becomes easier and easier and easier.
29:01 Brian Preston? So this is also the point. You can start having, we need to focus on what specifically are your areas that we need to have a big interest in. And this is focus on fine tuning your plan. And the first thing you have to ask yourself, can you even use the match? Now, look, the more income you make, the more the responsibility of your success falls on your shoulders. And that's why we've put in rules that if you're a single individual and you make over $100,000 or a married couple making over $200,000, I don't want you counting your employer match anymore in that 25% saving and investment goal. And the reason is, is because you're getting away from the social safety net of social security and other things. You've got to be disciplined. So that way, when you stop working,
29:47 Brian Preston? the music doesn't just get ripped out from behind you and you're like, holy cow, I have no assets that will actually replace my good income. This will help you focus on the responsibility of building an army of dollars to work just as hard as you.
30:00 Speaker 01 Another way you can sort of fine tune your plan is ask the question, am I at the point now where I can max out my 401k? Not just get the employer match, not just put in the minimum amount to get the maximum employer money, but can I go all the way up to the salary deferral limits? And for those of you that are curious, in 2026, the maximum salary deferral you can do, either on the pre-tax side or the Roth side, is $24,500. That comes out to just a touch over $2,000 a month. We still love you doing Roth IRA. And love you doing HSAs, but if your income has gotten to the place to where those alone don't get you to 25%, consider maxing out your 401k at that 24.5%.
30:42 Brian Preston? And then let's talk about where you actually put the money. You know, you've seen this. We've gone through the decades. The separation from what's in your 401k to what you'll actually need for financial independence starts getting different. That's because this is step seven of the financial order of operations and the fact that the majority of your saving and investing on the first steps, one through six is to keep you out of danger by having enough cash reserves. And then the rest of it is kind of tax favored or free money from your employer. We've got to think about in step seven, how are you going to use this money and have your, live your best life? That's going to include you saving up after tax assets, actually focusing on what are your goals? If you're part of this fire slash fine movement where you want to go to the next endeavor and not have to keep doing these things,
31:26 Brian Preston? you better have assets built up because if you can't get access to a 401k until you're 55 or to an IRA until you're 59 and a half, you better have a bridge of assets that's going to get you to that place.
31:38 Speaker 01 All right, Brian. Now let's talk about the 50s and beyond. Let's talk about, this is sort of the next phase of wealth building. If we look at the average 401k balances, according to Fidelity, average 401k balance for a 50 year old, we've already established about 190,000, but now it starts to level out a little bit. Average 401k for a 55 year old, 240,000. Average 401k for a 60 year old, 265,000. And the average 401k balance for a 65 year old, $271,000.
32:08 Brian Preston? Yeah, this is where I think you can start to see where the leakiness is in these 401ks because this is showing actual balances. This is not what just a numeric exercise of what money can grow to. You can see people are somehow, the money's just not compounding upon itself like it should be. And this is why when you say now, when we shift the exercise to how much do I need? Guys, this is gonna blow your mind and this is why you can't let your 401k be leaky. And this is also why you have to focus on building assets even outside of the 401k.
32:38 Speaker 01 So remember, at 50, we wanted to be at 6.4x our annual income. By the time we get to 60, we want to be at 13.7x our annual income. And then when we get to financial independence, if we're still using income as our metric, we want to be at 20x our annual income. So if we think about the median income for someone in their 50s, it's a touch under $72,000, $71,600. Well, now, when we look at the average 401k balance relative to the prescribed portfolio value, there's a big difference. At age 50, the average 401k is $190,000. We want you to be at $460,000. At age 55, the average 401k is $240,000. We want you to be at $673,000.
33:22 Speaker 01 At 60, the 401k balance is $265,000. We want you to be almost crossing into million dollar land. And by the time you get to financial independence, if you are a median income earner, earning about $72,000 a year, the average 401k balance is about $271,000. But we would argue, you need your total portfolio to be a little over $1.4 million.
33:44 Brian Preston? I don't mind, you know, I've been doing things long enough that I feel like I have a purview of where success is. And I think it's interesting, when you look at, for a 30-year-old, when we looked at actual balances in 401ks to what we've calculated at median of one time, there was only a $4,000 spread. And I think that if you ask yourself, well, why is that? Why do we all start out where it seems so close to success? It's because our employer was doing the heavy lifting. They were actually funding 5% of your salary into this, but as it got to be more and more important for you, the average saver and investor, to start putting money to work, not just your employer, people failed them. They fell down. And that's why you're a financial mutant. You're watching financial content.
34:26 Brian Preston? This is why it's so important for us to hone in on what can you focus on in your 50s that's really going to move the needle? The first thing is, focus on landing the airplane. I know you're not average. You're beyond average, so you're not sure. Struggling with some of the things that the typical American is, but you still probably ought to check out ketchup contributions. You ought to make sure you understand, once you get to be 50 and over, there's all kinds of incentives the government offers us.
34:52 Speaker 01 Yeah, maybe you're behind. Maybe you haven't quite been doing the saving that you should have been doing. Well, that's great. At this age, now you have an opportunity. We've already, we've already said that the salary deferral maximum is 24,500, but that's for those that are under 50. If you're over 50 this year, you can actually save $32,500. And if you happen to be between ages 60 and 63, you can actually defer $35,750 into your 401k. So if you've not been doing what you're supposed to be doing, or maybe you're just not quite at your number yet, this is a great opportunity to use that extra margin to get there.
35:30 Brian Preston? And don't sleep on the rule of 55. A lot of you guys don't want to work until you're 65. You want to leave the workforce when you're in your 50s. Well, this is where 401ks have a unique benefit that if you actually separate service in the year you're 55, you could actually pull this money out penalty free. So don't sleep on it. We've used that for several clients as a, as a bridge because maybe they couldn't get to their IRA assets because that's 59 and a half. 401ks have unique opportunities. Also, think about, we said rule 55, this might, 457s and others might even have more favor. The biggest thing is know what your options are.
36:05 Speaker 01 Yeah. Another thing we want you thinking about when you're trying to land the plane is that recognize hopefully the size of your portfolio in your 50s is very different than the size your portfolio was in your 20s. That's likely true. Well, also the composition, the way you invest in your 50s ought to look different than the way you invest in your 20s. So do you have an allocation that's appropriate to your timeline? If you are someone who's going to leave the workforce, begin living off these dollars, have you adjusted appropriately? Are you at the right place on the risk spectrum? So that if you were to have a bad sequence of return, you're going to be protected and inoculated against that. Make sure that you're thinking through that and not burying your head in the sand.
36:46 Brian Preston? And then the last thing to kind of close this out is measure twice, cut one. Look, we have built an entire platform that if you can just make small decisions, they can create dramatic, huge differences in your future. And I love the fact that we've created content that lets it do it yourself or be amped up to speed up their success. But you will reach a point that even simple, that you've tried to keep your life organized, efficient and simple, you'll create complexity. Success creates complexity and you just don't know where your blind spots are. You don't know where you, you know, what you just don't know about what's coming with retirement. And that's where we say, measure twice, cut once. We're going to leave the porch light on for you for all the complexities that come your way with,
37:28 Brian Preston? how does this integrate from tax planning? What can I pull out? Is social security going to be taxable? What about Medicare premiums? All these things, you know, how do I know about Roth conversions? All these are the type of things that we help clients with. So you don't have to be an expert. Use the simple stuff we're sharing, but when you create complexity, take the relationship to the next level. I'm your host, Brian, joined by Mr. Bo, Money Guy Team, out.
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