While young people who have just entered 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 start small. Not only are 401 (k) contributions excluded from your taxable income, but if your company offers correspondence, you are essentially receiving money for free as well.
For many Americans, 2020 was a financially difficult year. Between March 2020 and January 2021, about 1.6 million individuals took savings 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 early withdrawal penalty, according to retirement. provider of Fidelity plans. This represents 6.3% of eligible individuals using Fidelity’s workplace savings platform.
But despite the volume of 401 (k) account withdrawals under the CARES Act, a third of 401 (k) savers increased their savings rate in 2020. Fidelity also saw record contributions from women in the fourth quarter of 2020.
The overall average balance of 401 (k) reached $ 121,500 in the fourth quarter of 2020, according to Fidelity.
How much money Americans saved in each age group
Fidelity also provided CNBC Make It with how much money Americans have in their 401 (k) s at each age.
Next, check out the average amount of money Americans saved on their Fidelity accounts in the fourth quarter of 2020, as well as the value of their contributions in relation to salary.
How much you should save for retirement
You should think about retirement planning as something you will do throughout your career, not just when you have a high salary.
“The most important thing is to start saving as soon as possible and consistently over time, because this is really what ends up building your balance in retirement,” said Eliza Badeau, vice president of innovative leadership at Fidelity.
While retirement may seem distant, it is best to start saving early because it allows you to overcome the ups and downs of the market, says Badeau.
Fidelity recommends that you have 10 times your reduced salary when you retire. To get there, the company recommends seeking consistent savings of 15% of its revenue, including both the employee’s and the employer’s contribution.
“Start saving as much as you can from your paycheck and, at least, if you receive an equivalent contribution, contribute enough to get that correspondence, so that you don’t leave any money on the table,” says Badeau.
Even if you start small, try to increase your contribution in small increments, to reach 15% of your salary, says Badeau.
How much emergency money should we have on hand
In addition to saving for retirement, it’s also important to keep your finances stable from a short-term perspective so that you don’t have to invest in the money you’ve saved for the long term, says Badeau.
Try to save three to six months in living expenses in a net cash account. You should think of it as an emergency fund to keep you afloat if you lose your job, says Badeau.
It may seem difficult to try to save so much at once, but it’s okay to start small. Set achievable goals by saving one month at a time and eventually work out the desired balance.
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