While younger people who are just entering the job market may think they don’t have to worry about retirement savings until later in life, the sooner you start saving for retirement, the better.
If your company offers a 401 (k) plan, it can be an easy way to start saving for the future, even if you are starting small. Not only are your 401 (k) contributions excluded from your taxable income, but if your company offers a match, then you also receive free money.
For many Americans, 2020 has been a difficult year financially. Between March 2020 and January 2021, approximately 1.6 million people saved from their 401 (k) plans under the CARES Act, which allowed those affected by the pandemic to withdraw up to $ 100,000 without incurring the usual penalty of early retirement, according to retirement – Fidelity plan provider. This represents 6.3% of eligible people using the Fidelity savings platform at work.
But despite the volume of withdrawals from 401 (k) accounts under the CARES Act, a third of 401 (k) savers increased their savings rate in 2020. Loyalty also saw record contributions from women in the fourth quarter of 2020.
The average global balance of 401 (k) reached USD 121,500 starting in the fourth quarter of 2020, according to Fidelity.
How much money did Americans save in each age group
Fidelity also gave CNBC Make It a look at how much money Americans have in 401 (k) at each age.
Below is a look at the average amount of money Americans have saved in their Fidelity accounts since the fourth quarter of 2020, as well as how much their contributions relate to their salaries.
How much should you save for retirement
You should think of retirement planning 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 over time, because that’s what builds your retirement balance,” says Eliza Badeau, vice president of thought management at Fidelity.
Although retirement may seem distant, it’s best to start saving early because it allows you to get out of the top and bottom of the market, says Badeau.
Fidelity recommends that you have a salary 10 times lower when you retire. To get there, the company recommends the goal of consistently saving 15% of your income, including both employee contribution and employer matching.
“Start saving what you can from your salary and at least, if you get a proper 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 with small increases, to help you go up to 15% of your salary, says Badeau.
How much emergency money you need to have on hand
In addition to saving for retirement, it is also important to keep your finances stable from a short-term perspective so that you do not have to sink into the money you have deposited in the long run, says Badeau.
The goal is to save three to six months’ living expenses in a cash cash account. You should think of this as an emergency fund to keep you afloat if you lose your job, says Badeau.
It may seem overwhelming to try to save so much at one time, but it’s OK to start small. Set achievable goals by saving one month in a row, and finally make your way to the desired balance.
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