What income would the average pension plan balance generate?

Retirement accounts are a crucial source of income for seniors. Social Security alone provides enough money to replace just 40% of pre-retirement income – which will not cover necessities. But are Americans on track to generate enough income in their later years?

Let’s take a look at the combined average 401 (k) and IRA balance among savers with both accounts and see how much money that would end up providing.

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This is the income a typical American would have as a senior based on average balances of 401 (k)

According to loyalty, the 401 (k) average combined and the IRA balance was $ 382,800 in 2021.

It might seem like a hefty sum, but if your account had around the average amount of money and you followed the 4% rule, that means you are withdrawing 4% from your account balance in the first year of your retirement and adjust for inflation over the following years – your savings would produce approximately $ 15,312 in annual income. For most people, even when combined with Social Security, that would probably leave them too little to live on.

Now it’s a medium balance among all retirement savers. It is therefore very possible that people nearing retirement have saved much more, while those far from retirement have smaller balances but have more time to grow them.

Yet Fidelity data also suggests that many people are probably not saving enough to prepare for the future. Fidelity found that the average savings rate in tax-exempt plans, including an equal employer, was around 11.6%. Saving nearly 15% of income could be crucial to building a sufficiently large nest egg, thanks to longer life expectancy and lower expected future returns.

How to beat the average

Seeing how much income the average benefit will produce may be sobering, as it clearly shows that even a relatively large account will produce a limited amount of money to survive as a senior. This is especially true once you remember that you have to factor in taxes and inflation. So if you don’t retire for a long time, an income of $ 15,312 will give you even less purchasing power than you might think.

The good news is that you can end up with a much bigger nest egg than average if you follow a few simple steps, including:

  • Start saving as soon as possible to put the power of compound growth to work for you. The sooner you start investing, the sooner your money can generate returns that can be reinvested and quickly increase your account balance.
  • Set detailed retirement goals so that you know how much you’ll need in your later years, so you can identify exactly how much money should be saved each month to stay on track to reaching your goal.
  • Automate contributions to retirement accounts so that you can always contribute the amount needed each month without any effort on your part.
  • Invest in an appropriate mix of different assets in order to be exposed to the right level of risk.

An above-average account balance will be crucial for a secure future, so start working on these steps today to raise more than the typical American by the time you reach retirement age.

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