Money Guy Show - Episode Summary: "Are You Saving Enough? 401(k) Balances by Age Revealed!"

Release Date: May 16, 2025
Hosts: Brian Preston and Bo Hanson

Introduction: The Importance of 401(k)s

In this episode, Brian Preston and Bo Hanson delve deep into the significance of 401(k) retirement plans, emphasizing their role in wealth building across different life stages. They illuminate common misconceptions, share insightful statistics, and provide actionable strategies to optimize retirement savings.

Brian Preston kicks off the discussion by highlighting the prevalence of 401(k)s among millionaires, challenging the notion perpetuated by social media that millionaires don’t rely heavily on these retirement accounts.

Why 401(k)s Are Beneficial

Bo Hanson expresses enthusiasm about the topic, stating, “…if we're going to be honest, we love 401ks” [00:10]. The hosts outline several tangible benefits of 401(k) plans:

1. Tax Advantages: Contributions can reduce taxable income either now (Traditional 401(k)) or in the future (Roth 401(k)).

   Bo Hanson: “…they are tax advantaged. Meaning that when you put money into your 401k, you can either save money on your taxes today or you can save money on your taxes in the future.” [00:39]

2. Employer Matching: Many employers offer matching contributions, effectively providing "free money" to participants.

   Brian Preston: “Don't sleep on the 50 to 100% guaranteed rate of return.” [01:18]

3. Behavioral Benefits: Automating contributions fosters disciplined saving habits, making it easier to consistently invest for the future.

   Bo Hanson: “One of the best ways that someone can set themselves up for success with their 401k is just by doing it.” [00:59]

Average 401(k) Balances by Age

The hosts reference a comprehensive study by Fidelity, one of the largest 401(k) providers, to shed light on average 401(k) balances across different age groups. This data serves as a benchmark to assess personal retirement savings progress.

• 20-Year-Olds: Average balance of approximately $4,400.

• 25-Year-Olds: Average balance rises to just over $15,600.

• 30-Year-Olds: Average balance reaches about $35,000.

Brian emphasizes the need for increased savings rates, noting that the median income often doesn't align with these savings figures.

Financial Milestones and Savings Goals

Brian and Bo introduce the concept of "money guy mile markers," which are savings benchmarks tailored to different life stages to ensure financial independence by retirement.

1. In Your 20s:

   • Goal: Have savings equal to your annual salary by age 30.

   • Median Income Example: For a median income of $54,000, aim to have $54,000 in savings.

   Bo Hanson: “If you're a 20 year old that wants to be a millionaire only has to save $95 a month to do that.” [03:04]

   • Key Advice:
     • Do's:
       • Start saving and investing early, no matter how small the amount.
       • Avoid accumulating debt, especially high-interest debt like credit cards.
       • Make informed large purchases to prevent financial setbacks.
     • Don’ts:
       • Live beyond your means.
       • Neglect the power of compound interest by delaying savings.

2. In Your 30s:

   • Goal: Achieve total investable net worth of approximately 3 times your annual income by age 40.

   • Median Income Example: With a median income of $86,000, target $257,000 in investments by 40.

   Bo Hanson: “If you can do better than that 9%, we can do a 25% that we talk about all the time on the Money Guy show.” [08:55]

   • Key Strategies:
     • Optimize Savings Rate: Strive to increase contributions progressively, aiming for a 25% savings rate.
     • Reassess Tax Strategies: Transition from Roth to Traditional contributions as income and tax brackets change.
     • Understand Vesting Schedules: Be aware of how long you need to stay with an employer to fully own their 401(k) contributions.

3. In Your 40s:

   • Goal: Accumulate investable assets totaling approximately 6.4 times your annual income by age 50.

   • Median Income Example: With a median income of $101,000, aim for $650,000 in investments by 50.

   Bo Hanson: “By the time you get to age 50, ..., it means you have to have about $650,000 saved up.” [35:21]

   • Key Considerations:
     • Maximize 401(k) Contributions: Take full advantage of catch-up contributions if over 50.
     • Fine-Tune Investment Strategies: Adjust asset allocations to balance growth and risk as retirement nears.
     • Leverage Additional Retirement Accounts: Beyond 401(k)s, consider IRAs and taxable brokerage accounts for further savings.

4. In Your 50s and Beyond:

   • Goal: Secure enough savings to replace up to 80% of pre-retirement income, translating to around 20 times your annual salary by 65.

   Bo Hanson: “By age 65 ... about $2.2 million saved up.” [43:14]

   • Strategies for Retirement Preparation:
     • Catch-Up Contributions: Participants over 50 can contribute additional funds to their 401(k)s.
     • Understand Withdrawal Rules: Familiarize yourself with regulations like the Rule of 55, allowing early withdrawals without penalties.
     • Adjust Investment Strategies: Gradually shift towards more conservative investments to preserve capital.

Maximizing 401(k) Benefits

Brian and Bo emphasize not only contributing to a 401(k) but also actively managing how those contributions are invested to maximize growth.

• Contribution Types:
  • Pre-Tax 401(k): Contributions reduce taxable income now, with taxes due upon withdrawal in retirement.
  • Roth 401(k): Contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement.
  • After-Tax Contributions: Additional contributions beyond the standard limits, offering opportunities for Roth conversions.

Brian Preston: “If you are someone who starts in your 30s, it's okay, you're still, 86% of the account value is likely the growth in income.” [03:59]

• Employer Contributions:
  • Matching: Employers may match employee contributions up to a certain percentage, often around 4.7%.
  • Non-Elective and Profit Sharing: Some employers contribute regardless of employee contributions or based on company profits.

Bo Hanson: “The average employer contribution [is] 4.7%.” [15:16]

Behavioral Insights and Discipline

A recurring theme is the importance of disciplined saving and investing habits. Automating 401(k) contributions ensures consistent investment, leveraging the power of compounding over time.

Bo Hanson: “Are you living below your means, are you making sure that whatever you have coming in is more than you have going out.” [11:28]

Challenges and Motivation

Despite the clear benefits, Brian and Bo highlight that the average American's 401(k) balances fall short of recommended milestones. However, they offer encouragement, noting that many are increasing their contribution rates and can still catch up by optimizing their savings strategies.

Brian Preston: “Every day you delay this is going to get harder and harder.” [35:58]

Moving Beyond 401(k)s

For those maximizing their 401(k) contributions, the hosts suggest exploring other investment avenues such as:

• Taxable Brokerage Accounts: Offer flexibility with no withdrawal restrictions.
• Health Savings Accounts (HSAs): Provide tax-advantaged savings for medical expenses.
• Roth IRAs: Complement 401(k) savings with additional tax-free growth opportunities.

Final Thoughts and Call to Action

Brian and Bo conclude by urging listeners to take control of their financial future, whether by starting early, optimizing current savings, or seeking professional guidance through resources like MoneyGuy.com.

Bo Hanson: “...download moneyguy.com resources, our wealth multiplier, to make sure you're on the right side of this.” [14:20]

Brian Preston: “You either need to own your financial life or if you just let it happen to you, it will own you.” [47:10]

Disclaimer: The Money Guy show is hosted by Brian Preston and Bo Hanson, partners with Abound Wealth Management, a registered investment advisory firm. The information provided is for informational purposes only and does not constitute financial, tax, investment, or legal advice. All investments involve risks, including the risk of loss.

This episode serves as a comprehensive guide for individuals at various stages of their careers, emphasizing the critical role of 401(k)s in achieving long-term financial security. By understanding where you stand and implementing the discussed strategies, listeners can better navigate their retirement planning journey.