Why most people’s 401(k) savings won’t support them in retirement

Are you counting on the savings in your 401(k) to support you in retirement? Most Americans don’t have nearly enough to adequately fund their retirement years. A new report using U.S. Census Bureau data states, “A 25-year-old median earner in 1981 who contributed regularly would have about $364,000 by age 60 [under ideal conditions], but the typical 60-year-old in 2016 had less than $100,000.”

Why is that? There are a number of reasons. For one thing, many people don’t have access to a 401(k). Last year, just a little over a third of people in the private sector worked for employers that offered them.

Although this type of plan has been around since 1978, that’s at least a few years after many people who are preparing to retire entered the workforce. Even a few additional years of contributions to a 401(k) make a big difference in cumulative savings.

Another reason is that many people who invest part of their pre-taxable earnings every pay period in a 401(k) don’t take full advantage of it. By contributing at least as much as your employer matches, you can grow your savings significantly over time. However, many people don’t prioritize their 401(k) contributions. They believe (and maybe they do) need that money to pay the mortgage, college tuition and other expenses.

One of the worst mistakes people make is withdrawing money from their retirement account — whether it’s a 401(k), individual retirement account (IRA) or some other type of plan — early. By taking an early retirement distribution (before you reach 59 ½), you pay a 10% penalty, and you decrease your overall savings.

If you’re deeply in debt (whether you’re already in retirement or that day is far in the future), emptying your retirement accounts may seem like a necessary move. However, it may not be the best one in the long run. It wise to explore all of your options, including bankruptcy, to determine the short- and long-term impacts on your finances and your life.