Is Your 401(k) Balance Higher or Lower Than the Average 40-Year-Old’s? Here’s How to Find Out.

By the time you turn 40, you’ve hopefully made some progress on retirement savings. But you may be wondering if you’re saving enough.

The reality is that comparing your retirement savings balance to the average person your age isn’t the most useful exercise. That’s because everyone’s financial needs are different, And the balance you need to live comfortably during your senior years may be higher or lower than what the typical retiree requires.

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Still, it could help to do a basic comparison with the understanding that there’s no single optimal savings target for 40-year-olds. And to that end, Fidelity reports that the average person aged 40 has a 401(k) balance of $120,100.

But if your balance is lower, that doesn’t mean all is lost. And if your balance is higher, it doesn’t mean you’re all set.

There’s time to boost your 401(k) balance if you aren’t happy

If you have more than $120,100 saved for retirement by 40, don’t assume your work is done. You may need to continue contributing to your savings to have enough money to cover your costs down the line.

On the flipside, if you aren’t happy with the amount you have saved by age 40, there are steps you can take to boost your balance. And the first step you can take is doing a serious assessment of your spending.

If you’re spending money on things you don’t need, cutting those costs from your budget could instantly free up money for your IRA or 401(k). And remember, you may not need to eliminate every nonessential expenses so much as make adjustments.

For example, let’s say you spend $150 a month on digital entertainment. If you can cancel two services and free up $50 a month, that’s an extra $600 a year for you to invest.

From there, make sure your money is working for you. Age 40 isn’t the time to be conservative with your investments. You may have another 25 years or more before you’re tapping your savings for income. So if the bulk of your retirement account isn’t in the stock market, you may want to rethink your strategy.

Finally, if you have a 401(k), make sure you’re not giving up your workplace match. Forgoing even a portion of it is akin to saying no to free money.

Time is still on your side

A $120,100 retirement savings balance is certainly respectable by 40. But if you’re not there yet, don’t assume the worst.

Let’s say you have half that much, but starting now, you begin contributing $400 a month to your 401(k) between paycheck deductions and your workplace match. If your investments give you an annual 8% return, which is a bit below the stock market’s average, you could end up with around $762,000 in 25 years.

Even if your retirement savings balance is $0 at 40, there’s still time to make up for it. And if you prioritize your IRA or 401(k) right away, you might accumulate quite a nice sum by the time your career comes to an end.

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