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:
• Average 401(k) balance: $174,100
• Median 401(k) balance: $60,900
• Contribution rate (% of income): 10.1%
• 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.