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How Much is Your 401k Worth?

The editor of Money Magazine recently wrote about Why We Flunked 401k, and mentioned some frightening statistics. In 2006, the median 401k balance was only $22,000.

This number is probably fairly skewed since there are 28% of eligible employees who don’t even bother to sign up for their 401k. And according to the Money article, 401k administrators say that many make investing errors when they do participate. They miscalculate their risk, don’t align their investment strategy with their goals, and make the same mistakes that every other investor makes (see 10 Mistakes Every Investor Makes).

Naturally, during tough economic times with uncertainty in the market, people make matters worse for their retirement future. Those without a balanced portfolio are likely seeing their retirement savings take a beating, and others may have stopped investing all together.

But it is times like these when a balanced portfolio is most important. It will limit your losses and protect your investment. When there is uncertainty in the market, it is an opportune time increase your contributions and take advantage of discount stock prices. As Warren Buffett says, “be fearful when others are greedy, and greedy when others are fearful.”
It seems counter-intuitive to invest when the market is performing poorly, but it may be the opportunity in your life to get rich. It’s interesting that when stocks hit an all-time high, everyone rushes to get in the market and become an expert at picking stocks. However, all they did was buy when things were most expensive.

Getting past the head game when investing is not easy, but it is essential if you want to build wealth. If you’re not contributing to your retirement plan, or have decreased your contributions because of the current market conditions, sit down and really think about your goals.

  • When do you want to retire?
  • How much will you need?
  • How will you get there?

Today and tomorrow’s market conditions should not affect your investment decisions. Throughout a lifetime there will be many ups and downs, and the downs give you the opportunity to accelerate your wealth.

Millionaire Money Habits: Remind yourself why you are investing, your investment strategy and your goals, and let that determine how you are contributing to your retirement plan. A $22,000 401k balance won’t get you there, so start regularly stashing away more money so you can retire early and retire well.

4 Responses to How Much is Your 401k Worth?

  1. Mrs. Micah says:

    Well, I’m still just starting out so mine’s pretty low. :) But I hope that by the time we get to be 30 it’ll have reached a far more respectable level.

  2. Lazy Man says:

    I found an interesting article about how much salary having a 401k option is worth - http://www.smartmoney.com/retirement/401k/index.cfm?story=howmuch

    Many people take having the 401k option for granted. My last three jobs didn’t have one available.

  3. Ryan says:

    Thanks for sharing that link, Lazy Man. That’s a really interesting article. I think I need to bookmark that one.

    Hazzard, that’s a great goal! I have a printout on hanging my cork board here that I found on thefool.com. It shows that just by maxing out your 401k you can expect to be a millionaire in about 17 years. If you continue to make those same $15.5k contributions you’ll have $2 million in just another 5 years! Kind of shows why it’s so easy for the rich to get richer, huh?

    I believe the reason the average balance is so low is because of that 30% that don’t contribute, so the fact that you have already started puts you leaps and bounds ahead of a lot of people. What’s great about a 401k (or any investment plan) is that it doesn’t take much. If you start early, those little contributions quickly add up to big $$. So even if you’re balance is low, that’s nothing to be discouraged about. Just keep making those contributions and time will take care of the rest.

  4. Roy says:

    When I retired, I rolled my 401K into my IRA (and moved the company stock out of the 401K via a NUA approach). After 3 years, the IRA balance is now $325K. I have not need those assets to live on so far and plan to either keep it invested until age 70 1/2 MDR kicks in or perhaps I will use the tax rule if it survives to roll the IRA into a Roth and let it just roll on.

    I would like to see other comments about managing an IRA/Roth post age 65.

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