I'm 47 and have about $200,000.00 in my 401k at work.I was wondering if I'm falling behind and need to start catchingup? What is a good average balance for say 55 and 65 years of age? I have an annual salary of about $60,000.00. I have a small biz too that I plan to run fulltime at retirement.

That all depends.....

What kind of return are you getting on your 401(k)? How long do you intend to work and continue adding to it? How much do you think you will need to live on during retirement? Is it a Roth? Is this your only retirement investment? Are you married and your spouse has a 401(k)? Is/will your home be paid off? By when?

As a general answer I would say it sounds like you are on track but may need to kick it up a bit. At retirement you should look at the total funds you have, then expect to live off of about 8% of a 12% interest. The 4% difference will allow it to grow and keep up with inflation.

I am mmarried with a 150000 mortage. I plan to work till 65 atleast. My 401k is a reg company 401k.They match some and I need to kick it up alot I know.

jrf,

We always recommend a person max out their 401K ESPECIALLY when your employer is contributing. The employer contributions can be viewed as guaranteed earnings plus whatever the financial vehicle earns.

While I don't disagree in theory to Dru's statement:

Quote:

At retirement you should look at the total funds you have, then expect to live off of about 8% of a 12% interest. The 4% difference will allow it to grow and keep up with inflation.

Consistently earning 12% per year, each and every year, in the market would be a tall order for even the most experienced of investors. A loss of principal of 25% or more would be a devastating blow to a senior age 70 and above.

So, that being said.....I would advise you to max out your 401K, then wittle down your mortgage. Once your mortgage is paid that will free up lots of discretionary income for other investments.

My 2 cents, probably only worth a penny.

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*Self Appointed Financial Expert

I have to disagree with the statement that an annual return of 12% each and every year is a challenge even for the most experienced investors.

That may be true if you follow the mutual fund approach, I agree with that, but mutual fund investors are the worst profesional investors and individuals who follow their investment strategies will always be behind in comparison to real professional investors.

There is a number of fund managers as well as individual investors that average way more then a lousy 12% per year.

Of course it depends on the investment strategy which is employed by the investor.

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It is not smart to play it safe but it is safe to play it smart.

I read a study recently that mentioned that the average 401k balance was $100,000. While your balance is 2x that the national average, American's are mostly very bad at planning for retirement.

To answer your question you need to ask yourself:

• What do you expect your annual expenses to be at retirement. If you own a home, and plan to have it paid off, you will be living free and clear. However, medical expenses and insurance policies may increase.
• How much longer to you plan to work
• How long will you live. In other words, you don't want to outlive your money
• What other assets do you have
• How much Social Security will you receive (maybe 20%)
• Remember inflation. If I remember correctly, the dollar loses half it's value every 15 years or so.

Assuming you work for another 20 years, you have plenty of time to accumulate a healthy nest egg. Depending on your current expenses, it is very feasible to create a couple million dollars just off your 401k contributions. Especially if you start maxing out to the full $15,500/year and you receive a company match.

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Unfortunately it is true that the majority are very bad when it comes to retirement planning.

By the same token the majority is also very bad in any financial planning as well due to a lack of understanding and wrong information.

Back to retirement planning and 401k plans, there was also a study which showed that those plans are under-funded by individuals and that the accounts won't be enough for retirement.

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It is not smart to play it safe but it is safe to play it smart.

I have to agree with i-Endeavors... there are a lot of questions that need to be answered in order to design a proper retirement strategy. Be VERY careful with some of the assumptions that people are suggesting.

First off, a 12% average annual return is entirely unrealistic, without considerable risk. Think single digits.

An 8% withdrawal rate in retirement is twice what academic studies have shown to be sustainable. Think closer to 4%, although some annuities are starting to push that to 5-6%.

This is where my personal philosophy for myself and clients differs...
Do not max out your 401k. Contribute the maximum necessary to get your company match, and no more. Take the money you would've put in your 401k, pay taxes on it, and place it into either Roth IRAs (if you qualify, you and your spouse), and then if there is any left over, traditional mutual fund accounts.

All the meanwhile make sure you have appropriate levels of life insurance, liability insurance, and disability insurance.

Most 401k's have typically the worst mutual funds available, and at best they are not ones of your choosing. By having investments outside your 401k, you are diversifying by having multiple investment pools, and with the IRA's or MF's you will have control over which investments you want. The Roth's, if you qualify, provide tax-free treatment which is a huge advantage if taxes end up going up (keep in mind we are in one of the lowest median tax brackets in history, there is only one way to go: up!). Tax-deferral could end up being billions of dollars in additional income for the future federal government if (or when) they raise taxes.

If the only constant in this world is change, why would you create a financial strategy that is static? Locking all your money away in a 401k is not the best move.

Once again I comletely disagree that a 12% annual return is un-realistic.

That is just wrong.

The majority will not achieve those results but to say it is not possible is just wrong.

The mutual fund approach may not achieve that but it is very possible.

In addition 12% ROI every year is actually a very bad return in my opinion. You need to know what you're doing and follow your strategy but it is definately possible.

Dou youhave to accept higher risk?

Not exactly. Risk is related to the lack of knowledge of the equity markets. I never look at global equity markets and consider them risky. There is always risk associated with any investment.

It is not smart to play it safe but it is safe to play it smart.

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It is not smart to play it safe but it is safe to play it smart.

Risk in the global equity markets is significantly higher than domestic U.S. stocks. Not only do you have market risk, but in addition you have the risk of both a weakening dollar AND country-specific turmoil. I do believe in global investing, but by doing it through a targeted mutual fund you can accomplish the same task with professional management/understanding of the investments.

I'm not saying that 12% isn't plausible, I'm saying don't ASSUME that. Better to assume the worst and have your investments outperform than to assume a higher return and fall short. There is also a significant problem with people saving money today, and when you become reliant on big returns to accomplish your goals then you may not be saving enough.

You may not look at global equity markets as risky, but that doesn't mean the average investor (the types that usually read this board) has the knowledge/experience/skill to navigate those waters.

My mutual fund portfolio consistently beats 12-15%, with average risk, but I wouldn't dare make that an assumption over any significant period of time.