How much money should I have in my retirement accounts?

A topic that often comes up among financial discussions with my friends is what an appropriate 401K net worth is.

A general rule of thumb is that you should have about one year’s worth of salary saved for retirement by 30. This should account for salary growth as well – if 30 is a few years away for you, factor in some growth in your gross income. However, for me and my friends who are still quite a while away from 30, early benchmarking has been a challenge.

In my first job out of college, I lived at home for a year to save money (and because the commute was very convenient). I was extremely lucky to be able to afford to max out my 401K contributions immediately upon starting my job. A quick poll of my friends and coworkers will tell you that this is not common. Most 401K plans recommend 8% as a good place to start making contributions, although, for many, 8% isn’t a number that is readily feasible. My point is, it’s impossible to create a benchmarking guide for all 20-year-olds because there are so many factors involved with planning for retirement. Instead, let me present my formula/thought process in calculating my own numbers, and you can use that as a framework for creating a set of goals to measure yourself against.

Step 1: Figure out a target retirement number. I used Bankrate’s retirement calculator to estimate how much I’ll need when I hit that retirement, in ~35 years. Based on my personal inputs, I’ll need a minimum of $1M when I retire.

Step 2: Calculate how much you need to contribute a month/year to hit that number. Click (Retirement Calculator – Cash Fasting) to download an excel I built to calculate retirement needs. As a bonus, I’ve included a separate tab for retirement goals benchmarking. It’s just a tool to help you get a sense of what you need if you don’t know already. For my case, I would need to put away a minimum of $12K a year in order to reach 1M. I’m already maxing out my accounts at a full $18K a year, so no concerns there!

Step 3: Consider opening an IRA account. Because 401Ks have contribution maximums, it’s nice to be able to put away money into other accounts that have tax benefits, too. This is a good alternative for those who don’t have company-sponsored retirement plans.

Step 4: Start saving! Whether it’s a 401K, IRA, or personal investment account, the biggest step is to start. It’s going to be slow going, at first. Money builds slowly, and you’ll have to fight the tendency to check your account every paycheck to watch your funds grow. However, you can use the numbers that were defined in steps 1 and 2 to benchmark your progress.

Step 5: Once you have auto-deposits set up and are comfortable with the amount that you’re putting away, challenge yourself to put away more! There’s nothing more motivating than outpacing your goals.

I only opened an IRA account in the past year; it’s not something I was aware of until recently unfortunately so all my growth in the past few years has been limited to my $18k capped 401K account. And while I have a pretty low target, my real goal is to maximize my retirement savings, so my desired numbers look like this:

Age End of Year Goal
23  $18,000
24  $36,000
25  $54,000
26  $72,000
27  $90,000
28  $108,000
29  $126,000
30  $144,000

I didn’t even include growth or IRA contributions because I’m currently falling behind even these goals. Between switching jobs, moving, and contribution delays, I haven’t been able to max out my 401K since I started working, despite setting a high contribution percentage. Why? Because it’s impossible to know what lies ahead. Shit happens. That’s why I think it’s so important to contribute to your retirement as early as possible. 10 years from now, I may be thinking about buying a house, or I might have children (that’s scary to think about now). I can’t plan for what I don’t know will happen, but I can plan for uncertainty. My personal benchmarks put me well ahead of my $1M retirement savings goal – I have a huge buffer that I can still fall back on. It’s also important for me to note that these are retirement goals, only – I have separate savings and investment goals that will help me reach FIRE well before 65, but that’s not the purpose of this post.

So if you’re in your 20s, or even well into your 30s, it doesn’t matter. It’s never too late to start setting yearly retirement goals.


5 Replies to “How much money should I have in my retirement accounts?”

    1. So true! Ideally, I’ll max out my contributions for retirement, and then start putting away more in my personal investment account that I’m mentally viewing as another retirement account.

      1. You have the incredible advantage, that I too had, of having time on your side. I recall telling a guy when I left my job, at 30, I put away 60k in my 401k and he was floored by this. I didn’t even think that was a lot.

  1. Congrats on maxing out your account from the beginning! I never heard of anyone doing this from the start of their career until I came across the Financial Samurai 8 months ago. In hindsight it made me realize that I could have easily been tucking away more than the $8-10k a year I was contributing for the first 6-7 years of my career, now I’m having to crank it up hardcore to stay on target.

    More people need to be told to max out their 401(k), even if they are starting at $40k salaries. All I was doing with my extra money back then was buying surfboards and binge drinking 5 days a week after work with co-workers. Super lame.

    1. Well, at least you have the memories! I think it can be super tough to max out retirement accounts for those starting at low salaries; my first job out of college was 60K and I lived at home for a year, so I didn’t feel any saving pinches. It’s definitely a huge benefit I had when I started working.
      Based on the things you write about, I think you’ve definitely caught up and are doing great!

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