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.

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.

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.

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.

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.

I agree with you that the average investor has not the skills/expereince to engage in global equity markets, not without any assistance.

Risk really depends on the knowledge you have and the success rate of your investments and your overall strategy.

When t comes to ROI then that is once again up to the individual investor and what the investor accepts as good.

Persoanlly I think it is very sad that you only get 12%-15% and that you don't even expect that, in my opinion, very low ROI every year. That is one problem with mutual funds but then if you are happy with that then that is great for you.

It meets your investment targets and I don't see any reason for anyone who is happy with the investments in the portfolio to make adjustments.

Personally, I wouldn't be happy with that performance. If you would have 12%-15% each quarter then that would be a different story.

Before you say it is not possible let me tell you it is. It may be rare and only a very few, probably unknown companies and selected individual investors are capable of those returns.

All I am saying it is possible.

I'm definitely not arguing whether it is possible, because I've seen it done. Close friends of mine ran a moderately successful hedge fund for a few years, throwing off 60-70% returns, before they got caught in the wrong positions at the wrong time and lost 75% of their capital. They were using highly leveraged positions and got caught with their hand in the proverbial cookie jar. It went downhill from there...

My 12-15% (real economic rate of return, NOT average rate of return) may not be 30+%, but I'm not taking considerable risk to get it. I do have my "play" fund, which is less than 10% of my overall portfolio, that I focus on individual investments (I rode Google most of the way up, but got off the train recently). Lately I've been playing some option strategies, and have been pretty successful with them.

That is great and if you are succesful and satisfied with your strategy then that is perfect.

That's why I say it is up to the individual investor and how success is defined.

What happened to your friends, well it does happen to some hedge funds. Other avoid that. It depends on the strategy which is implied.

Many hedge-funds use leverage without the proper safeguards. Leverage is a great tool if you know how to use it (as with any tool available).

If any fund manager looses 75% then the safeguards were not in place. Some hedge funds will blow up all-together. It is up to the management team to avoid those scenarios.

Sure, I have no problem with alternative investment strategies.

As long as there is an accurate assessment of all risks involved.

All too often people jump on an investment bandwagon because they are "sold" on the idea of high reward, low risk, only to find out something entirely different. This includes investment schemes, computer-generated transaction schemes, newsletter schemes, penny-stock schemes, etc.

Also, I suggest people look at REAL rate of return, not average rate of return. Include annual tax bills (which have to be paid somewhere), fees, transaction costs, etc. in your analysis.

And with that hedge fund, they did have safeguards in place. But they were making such huge returns and pulling in money so quickly that the safeguards were long forgotten. Just as any investor can fall victim to, greed overwhelmed rationale and logic. When emotions choose your investment decisions, you always lose.

You are absolutely right. When emotions take over the investment decissions failure is the likely outcome.

The same holds true for greed.

Unfortunately many fall victim to the scams that you have mentioned. I think newsletter (although not all are bad but I guess over 90% are scam) and penny stock schemes are among the most common 'ideas-sold'.

Too many jump on those bandwagons due to lack of experience/knowledge. They are tricked by high returns, low fees etc. and the majoriyt of time will suffer significant losses.

The industry is so big and when it comes to money there will always be enough attraction for scam artists to fool the very greedy and un-informed.