Are individuals, in general, saving enough for retirement? No. In fact, the median 401(k) account balance for a baby boomer age 60 to 62 is well shy of what that boomer will need. According to The Wall Street Journal, many boomers in their early 60s find that their 401(k) plans come up short.
Only ¼ of what’s needed
According to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for the 2/19/11 Journal article, many boomers will not be able to maintain their household’s standard of living in retirement. The median 401(k) account balance is less than ¼ of what’s needed. The analysis assumed people need 85 percent of their working income after they retire to maintain their standard of living.
“The 401(k) generation is beginning to retire, and it isn’t a pretty sight,” concluded the article’s writer, E.S. Browning.
2012 contribution limits
The ultimate goal would be to contribute the maximum amount allowed by the Internal Revenue Service.
- For 2012, contribution limits for 401(k)s will increase to $17,000, up from $16,500 in 2011, according to the IRS.
- Catch-up contribution limits for those ages 50 and over will remain $5,500.
Click the image or this link to learn more: 2012 Retirement Plan Contribution Limits.
New: Contribute 15% of your salary
The Journal article noted that Vanguard Group, one of the biggest providers of 401(k) plans, has changed its advice on how much people should save:
- Vanguard long advised people to put 9% to 12% of their salaries – including the employer contribution – in their 401(k) plans. The current median amount that people contribute is 9%, counting the employer contribution, Vanguard says.
- Now Vanguard urges people to increase their contributions up to 15% of their salaries, including the employer contribution, because of the stock market’s weak returns and uncertainty about the future of Social Security and Medicare.
I have long stressed the importance of having a 401(k) or other defined contribution plans to an individual’s overall retirement plan. This latest analysis suggests it would be good to meet with a qualified advisor to see how your retirement plan is doing.
