If misused, a 401k can’t be your retirement plan

Making 401k funds easier to use before retirement is a mistake. Aside from the obvious decline in retirement assets, it promotes the idea that 401ks are not strictly retirements plans. Actually, they weren’t originally intended to be a workers primary retirement vehicle but they are certainly better than nothing given most workers never had a traditional pension.

Nevertheless, not enough is being accumulated to provide, along with Social Security, a comfortable retirement. The two major issues are insufficient savings at younger averages and early withdrawals and loans. Workers between 30-39 are saving only 7.8% of pay.

According to Investopedia workers:

Age 50–59

• Average 401(k) balance: $174,100

• Median 401(k) balance: $60,900

• Contribution rate (% of income): 10.1%

Age 60–69

• Average 401(k) balance: $195,500

• Median 401(k) balance: $62,000

• Contribution rate (% of income): 11.2%

The average balance is misleading as it reflects the relatively few high account balances.

A worker earning $50,000 a year can expect a monthly Social Security benefit of about $1394 ($16,728 a year) at age 66 in 2020 A 401k balance of $62,000 will generate an annual income of about $2,480.

That’s a total income of $19,208 or 38% income replacement and for most people that is woefully inadequate.


  1. I changed jobs just over 6 months ago – so my 401k balance is small (about $8,000). I contribute 8 % and get a 50 % match (not great, but I have a pension as well). I’m 57 and don’t believe in rolling 401k balances over from one employer’s plan to another. There are sound reasons for rolling over (money available for loans, rule of 55 if you leave employment for any reason), but I like to consolidate everything in my Vanguard IRA. My point being that 401k balance is only part of the equation and I am sure there are plenty of folks in my position, My IRA balance is over 1M – so I don’t compare well using 401k balance, but I am way ahead on the IRA balance scale.


  2. Tried to post something, but it doesn’t seem to recognize me anymore.

    Don’t forget to include DB plans, as well as IRAs – keeping in mind that more than half of the assets in IRAs are rollovers from tax qualified plans.



    1. I clicked through and skimmed the article. It’s better than I thought. It mentions other retirement savings, but it gives the overall average amounts and they are pretty small. What does surprise me is the contribution rates. I couldn’t tell, but it appears they are including the company match. If so, I’m at 12 %.

      Also, I put the maximum into my HSA. That balance is growing nicely, but we have had some significant expenses during the time that I’ve had it – so I don’t expect that this will be a “backdoor Roth” and I don’t currently invest it. I consider it to be part of my ‘cash’ holdings.


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