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Is your 401(k) account enough?

(MoneyWatch) Recently I wrote about a Fidelity Investments study where the average 401(k) balance among 12 million participants in plans they manage is $77,300, which was the highest level on record ever.

401(k) Accounts Hit Record Levels 

401(K) Contribution Limit Rises

Why You Should Not Cash Out Your 401(K)

Another thing their report highlighted is that the average savings rates for older workers are almost four percentage points higher than for workers in the 30 to 40 age range. Fidelity's report says that those aged 30 to 34 save about 6.5 percent in their 401(k) account. Workers aged 35 to 39 saved 7.2 percent on average.

Fidelity also has an age-based savings guide that estimates how much workers need to have saved for retirement by a specified age. For example, if you are age 65, you should have saved at least 7 times your current salary. And how much do you need to have saved in your 401(k) to be on track if you are younger? According to the guide, if you are 30, you'd need .5 times your current salary accumulated. If you are 35, that would be about 1x salary. By the time you reach 40, you should have accumulated up to 2x your current salary or more, in your 401(k) plan account.

Challenges for Savers Aged 30 to 40

People in their 30's and 40's have challenges than can interrupt their retirement savings. This is the time when other life events, such as getting married, buying a home, having children, etc., can compete for more of your income, leaving little if any to save for retirement which is a long way down the road.

Here are some savings strategies for people in their 30's and 40's to consider.

Always Save for Retirement

It is all too easy to allow other priorities to crowd out your retirement savings. Some folks think that building home equity will be their main source of retirement savings. But there are significant risks in relying on your home equity as your long-term retirement income plan. The home may not appreciate and you may not get the price you want when you sell. Also, in retirement, you'll still pay for a place to live.

Some folks are tempted to stop saving for their retirement in favor of putting money away for their children's college education. What you need to keep in mind is that while there are financial alternatives (loans, scholarships, work study, etc.) that can help to pay for education costs, there are no such programs to pay for your retirement!

Often saving for retirement gets put on hold when a two-income household suddenly becomes a one-income household, such as often the case upon the birth of children. A negative impact on retirement savings for workers who leave the workforce is that they do not continue participate in an employer provided retirement savings plan such as a 401(k) plan. If you do this, even if only for a few years, you still should continue to accumulate retirement savings in your name. One way to do this is to open and contribute to a Spousal IRA.

Increase 401(k) Contributions

By now, you should be contributing more than 10 percent to your 401(k) plan, because you were taking a part of each increase in pay to increasing your contributions to your retirement savings. Also, as your income grows, more of it will be included in higher tax brackets. This makes the pre-tax contributions you can make into a 401(k) plan more valuable to you. One of the more recent features provided by 401(k) plans of larger employers is called an automatic contribution escalator. This allows plan participants to set up future increases in their contributions to coincide with expected pay increases.

Invest For Growth, Diversify and Rebalance

Since retirement is still a long time away, your retirement savings should still be invested mostly in stock funds. But now that your balance is larger, diversification becomes more important. Chances are you will experience a stock market downturn. If the stock market falls 10 percent, a $100,000 portfolio invested 100% in stocks will fall in value by $10,000. On the other hand, if your portfolio was invested 75 percent in stocks, it would only fall $7500, which would be easier to recover from.

Finally, take the time to review your account and its performance at least quarterly. Most large employer's 401(k) plan web sites today include a personal rate of return, which indicates the performance of your account. Also review the year-to-date performance of the funds in which you are invested and compare these to their peer-group index performance. You also should be rebalancing your account at least annually. Many employer plans include an "auto-rebalancing" feature, which you can elect to set either on the plans web site or by calling the plans service center. This automatic rebalancing feature will typically rebalance your account either quarterly or annually and is typically offered at no additional cost.

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