How Much Are We Really Saving in Our 401(k)s?

According to the Federal Reserve’s Survey of Consumer Finances (SCF), a typical worker who ends up at retirement with earnings of slightly more than $50,000 and who contributed 6 percent steadily with an employer match of 3 percent should have about $320,000. However, the typical individual has only $78,000. Younger people do not appear to be on track for those “typical” accumulations either.

Vanguard’s median balance for 2009 for participants age 55-64 was $53,586. The Employee Benefit Research Institute reports participants in their 50s had $139,932. Using the SCF figure of $78,000, 401(k) balances will produce about $400 per month of income in retirement if the participant buys a joint-and-survivor annuity; $260 per month if the participant applies the “4-percent” rule.

The hope for the future is that younger workers will have spent more years covered by 401(k) plans and have been exposed to more automatic provisions, such as auto enrollment and auto escalation in the default contribution rate, than the early boomers.

To read more about 401(k) savings, visit Smart Money.