I was reading an article from Money magazine that had the average retirement account size based on the owner’s age. I was anxious to see how we stacked up against the average person our age. Once I started reading the article I was really surprised how low the numbers really are. I have read similar articles like this before. In fact, when I first started reading them we were less than the average for our age. What really stuck out to me this time was how many people under the age of 35 did not have a retirement account – 58%. The averages the article provided don’t even include the over HALF of the age population that would have $0 in their retirement account (if it existed). So the true “average retirement account” is much less than the article says, see for yourself:
How Do We Compare?
As of the latest net worth update, we are beating the average! Our retirement accounts are sitting at $150,575; nearly 5 times the average for people in our age group (<35). And over 11 times more than the “true average” when including people without a retirement account. (We currently have that money sitting in 3 retirement accounts, my 401k and 2 Roth IRAs.) Unfortunately, being better than average is not good enough when the average American is woefully unprepared financially for retirement.
It just reinforces how fortunate I am that my parents cared enough to teach me about money. Let alone saving for retirement at a young age. It also makes me feel fortunate that my wife and I didn’t spend the first 6 years of our marriage racking up debt and making it hard, if not impossible, to save now. I also can’t help but imagine how close we could be to having F-U Money if we had started saving for retirement when we got married, and didn’t allow lifestyle creep (at least to the extent that it has gotten). But we can only control what is in front of us, the past can’t be changed.
The Average Retirement Account is Failing
So if the average person is failing to plan appropriately for retirement, who should you compare yourself to? NOBODY. Your wants and needs for your retirement are yours alone. A person with a $2,000,000 retirement account may have a $250,000/yr lifestyle. They still need to save an additional $5,500,000 before they can retire. Meanwhile, someone like Mr. Money Mustache only needs $868,000 because his family lives off of ~$30,200 a year. It is most important that you know yourself before you start looking to compare yourself to anyone else. In the last couple of years, Fidelity has come out with a general guide to how much you should have in your retirement account.
I think that guide is pretty good for the average person looking to retire comfortably in their 60s. Using the Fidelity guide, we should shoot to have the following retirement account based on our income today:
Well look at that. Based on what Fidelity says we’re a little ahead of where we’re supposed to be. So that’s reassuring. We’re doing a little bit better than what Fidelity says is an average retirement at 67. I don’t know about you, but I don’t want to work into my 60s, and I don’t want an “average retirement”. There are several reasons why, a few of them can be gleaned from my average day of retirement post.
Not Settling For Average
There was a post from Financial Samurai, one of his most popular posts, that had average retirement account goals for individuals that were more geared towards saving money and retiring early. The goals that he outlined are much closer to what we should be using as a measuring stick. We want a retirement that is way better than the average. By his chart (which only accounts for 401k), we are just passed the low end target for our age. When I first saw this chart a few years ago, I was so discouraged because I was below the low end range at 27 years old (I think my 401k was around $42,000 at the time). It just goes to show how being intentional with savings can make up for (some) lost time.
Setting Your Own Goals
Because the average American is a failing at retirement planning, and because retirement goals are personal, you should set your own “average” retirement account targets. Once you have a plan on how much you believe you will need in retirement, chart out how those accounts need to grow in order to achieve that goal. What will your retirement account look like in 1 year? 5 years? 20 years? Let those goals be your measuring stick to determine success. To create mine, I calculated that with my maxed 401k contribution and maxed IRA contributions and a 7% annual return, I should hit the following targets over the next several years:
These are the targets I will be judging the retirement accounts as we make our way to $1,000,000 by 2030. I know a 12 year timeline to hit $1,000,000 isn’t sexy, but Rome wasn’t built in a day. This isn’t a get rich quick scheme that is being followed. This is a story of slow, methodical and calculated choices that lead to financial security. We are the tortoise, and we aren’t comparing ourselves to the hare (or other tortoises for that matter!). The race is just getting started, and 4,390 days are going to pass by before we know it.