Although younger people who only enter the workforce think that until later in life they no longer have to worry about retirement savings, the better off you are going to save for retirement.
If your business offers a 401 (k) plan, it can be an easy way to start saving for the future, even if you start small. Contributions not only exclude your 401 (k) from your taxable income, but if your company offers a contest, you are essentially getting free money as well.
For many Americans, 2020 was a financially difficult year. Between March 2020 and January 2021, approximately 1.6 million individuals withdrew from their 401 (k) plans under the CARES Act, which withdraw those affected by the pandemic up to $ 100,000 without incurring the usual early withdrawal penalty. , according to retirement. plan provider Fidelity. This represents 6.3% of the eligible individuals who use Fidelity’s workplace savings platform.
But despite the amount of withdrawals from 401 (k) accounts under the CARES Act, a third of 401 (k) savers increased their savings rate in 2020. Fidelity also had record contributions from women in the fourth quarter of 2020.
According to Fidelity, the total average salary of 401 (k) from the fourth quarter of 2020 was $ 121,500.
How much money did Americans save in each age group?
Fidelity also gave CNBC Make It a look at how much money Americans have in their 401 (k) s at each age.
Below is a look at the average amount of money Americans have saved in their Fidelity accounts since the fourth quarter of 2020, as well as how much their contributions are relative to their salaries.
How much should you save for retirement?
You need to think of retirement as something you do during your career, not just when you have a large salary.
“The most important thing is to start saving as early as possible and consistently over time, because that’s really what builds your balance at retirement,” says Eliza Badeau, vice president of thought leadership at Fidelity.
Although your pension may seem far-fetched, it is better to start saving early because you can drive out the highs and lows of the market, says Badeau.
Fidelity recommends that you turn off your salary ten times by the time you retire. To get there, the company recommends saving 15% of your income consistently, including your employee contribution and the employer contest.
“Start saving what you can from your salary and at least, if you do get a matching contribution, contribute enough to get the game going so you leave no money on the table,” says Badeau.
Even if you start small, try to increase your contribution in small increments to work up to 15% of your salary, says Badeau.
How much emergency cash should you have
In addition to saving for retirement, it is also important to keep your finances stable from a short-term perspective so that you do not have to dive back into money you have put away in the long run, says Badeau.
Aim to save three to six months’ cost of living in a liquid cash account. You have to consider it an emergency fund to keep your head above water if you lose your job, Badeau says.
It may seem overwhelming to try to save so much at once, but it’s OK to start small. Set achievable goals by saving one month at a time and eventually work to the desired balance.
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