Key Points
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Data shows that older Americans don’t have a lot of money set aside for retirement.
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Without ample savings, you might struggle to keep up with your costs in light of Social Security cuts.
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There are ways to catch up on savings if you’re nearing retirement and aren’t where you want to be.
Many people pledge to save for retirement only to find that life’s many expenses get in the way. You might tell yourself, “this is the year I’ll boost my 401(k) contributions,” only for that to be the same year when your roof springs a leak and needs a replacement.
It’s easy to see, then, how you might reach the latter stage of your career without much money in retirement savings. And if so, you’d be in good company.
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What the typical American ages 55 to 64 has saved in their 401(k)
Each year, Vanguard releases data on 401(k) plan savings. And one of the things it does is break down average and median 401(k) savings by age group.
In its most recent report, it found that the average 401(k) balance among Americans ages 55 to 64 was $271,320. However, the median 401(k) balance among that same age group was only $95,642.
When you have a median that’s much lower than the average, it tends to be mean that the median is the more representative number. In this case, it could be that a small percentage of strong 401(k) savers brought up the average.
Here’s the problem, though. Even the larger number of the two isn’t a whole lot of money for someone on the cusp of retirement.
If we apply the popular 4% rule to the average balance of $271,320, that’s an annual income of about $10,850. Given that Social Security is facing cuts, that’s not a lot of money to have outside of those benefits.
Meanwhile, applying the 4% rule to the median $95,642 balance amounts to only $3,800 and change. Depending on where you live and what expenses you incur in retirement, that may only be enough to cover a single month’s worth of bills.
How to boost your 401(k) savings before retirement
If you’re closer to 64 than 55, and your 401(k) balance is similar to the average or median balance Vanguard reports above, then you may need to push yourself to work a few extra years so there’s time to boost your savings. If you’re on the younger side, there may be time to make positive changes that help grow your 401(k) while you’re still working. Those include:
- Making catch-up contributions in your 401(k).
- Working a side job to free up more money for savings.
- Downsizing out of a larger home a little sooner and banking the savings that gives you.
With regard to 401(k) catch-ups, beginning this year, there’s a special provision for savers ages 60 to 63. With this new rule, you can make a catch-up of $11,250 instead of $7,500.
Granted, if your total 401(k) balance is $95,642, or even $271,320, taking advantage of that larger catch-up may not be possible. But in that case, try to squeeze out a little more savings each year until you retire.
The more money you save in your 401(k), the more comfortable your senior years are likely to be. And if you make the effort, you may find that you’re able to boost your nest egg quite nicely in the nick of time.
The $23,760 Social Security bonus most retirees completely overlook
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