Americans' 401k Totals Just Reached a New Record.  Don't Celebrate Yet...

The average 401(k) balance reached a record high of $91,300 at the end of 2014, Fidelity Investments reported Thursday. 

That’s starting to sounds like real money. Even better, the average balance for employees in the plan for at least 10 years was $248,000. 

So, is the retirement crisis over? Not so fast.

Roughly one-third of all U.S. families have no money set aside for retirement, Federal Reserve data shows. This includes 19 percent of people aged 55 to 64. 

Plus, looking at Fidelity’s average makes the number look higher. The median account size at Fidelity is just $24,600. That means there are a lot of high net worth accounts skewing the overall average far higher. Baby boomers, who are at or near retirement, are 36 percent of account holders, according to Fidelity.

Many financial planners espouse the “4 percent rule,” which would mean you’d need to have $1 million saved by retirement to safely withdraw $40,000 your first year and make sure your next egg lasts 30 years. The average Fidelity account holder is a long way away from that kind of retirement security. 

DYI Comments:  Our borrow now and pay later society and our sub atomic low interest rates has dropped our savings rate into the cellar.

  

In order to fashion any sort of retirement or to simply get ahead in the savings game a mere 15% savings rate is not enough.  25% is your target plus.  Don't despair not all of this money is destined for retirement many decades from now.  Let's back track for a moment.  The three biggest expenses for young(er) people is housing, cars, and student loans.

Student loans unfortunately has done nothing more than constantly increased the cost of higher education.  Simply put the money went to the University not to the student to defray those costs of higher education, so much so college costs are increasing faster than medical expenses.

Do whatever it takes to hold down student loan amounts.  Attempt to pay as you go.  I know it will take longer and in some cases far longer to get through school.  I routinely run into students who have 30, 40, 50 thousand dollars of student loan debt for undergraduate degrees.  These for profit schools many will have the same dollar amounts as the undergraduate; they have an associates degree.  At any rate think outside the box.  On line schooling, trade schools, pay as you go.  Anything to hold the line on borrowing money.  Student loans cannot be discharge in bankruptcy.

There are ageing Baby Boomers who are having their Social Security income garnished to pay for long ago student loans! Ouch!

Cars or trucks are to needed to get you from point A to point B in a safe manner.  Attempt to pay no more than 30% of your yearly income for your transportation.  At 50 grand income that is a new Honda Civic (or something similar) obviously as a student you will be making far less shop for a quality used car (4 or 5 years old) to get you as close to that 30% threshold as possible.

Housing:  If you are living at home, stay there, til you graduate.  Besides Mom makes great home cooked meals and when you're pressed during finals your laundry may get done as well.  If you are on your own then rent no more than the equivalent for buying at no more than 1.5 times your income. Aspiring millionaires (those who actually make it) will not spend more than 1.5 times their income for housing and that is the maximum.  Many will go as low, to a 1 to 1 ratio.  If you have to play the roommate game then do so.

Back to that 25% threshold for savings(You're finished with school and loans).  Due to our sub atomic low interest rates bond returns such as the 10 year Treasury are at or below 2% along with a "jacked up" stock market, future estimated 10 year average annual returns are 2% or less as well, increased savings is a must.

15% savings rate for retirement and 10% for future general expenses such as car replacement.  Live way below your means, drive modest cars, and most importantly don't give a damn what other people think about your modest lifestyle.  In the end you will have a bountiful life free of stress caused by money.      

DYI