I’m 29 and have $45K in my 401(k) — and retirement calculators say that could grow to $4.5M by the time I’m 65. Is that way too high?

Christy Bieber
I’m 29 and have $45K in my 401(k) — and retirement calculators say that could grow to $4.5M by the time I’m 65. Is that way too high?
I’m 29 and have $45K in my 401(k) — and retirement calculators say that could grow to $4.5M by the time I’m 65. Is that way too high?

At 29, having $45,000 in your 401(k) means you’re ahead of most of your peers and already on your way to retirement.

However, there’s still some way to go before you can fully enjoy the fruits of your savings. According to Vanguard’s How America Saves, the average retirement savings for Americans ages 25 to 34 is $37,557, and the median is $14,933.

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Retirement calculators project that you savings will grow to $4.5 million by the time you’re 65 assuming you keep investing steadily throughout your career. If you stop now, you'd have $1.68 million from compound interest alone, assuming a 10% annual return.

While seven figures may seem like more than enough, it may not be. Here's why.

How much is too little?

The reality of retirement finances can be surprising. It’s easy to assume that having a million dollars stashed away guarantees a worry-free future after your career, but there are several factors that can complicate those plans.

First, you can’t access that money whenever you want. Withdrawing too much too soon could mean you can't continue earning a good ROI and your account balance dwindles to nothing while you're still alive. Limiting withdrawals to around 4% of your account balance is one rule of thumb that can prevent that from happening.

If you follow the 4% rule, $4.5 million provides $180,000 in annual retirement income — a seemingly princely sum. However, if you retire at 67, 39 years of inflation will reduce this amount’s buying power to about $57,000, assuming a 3% inflation rate.

If you're used to a generous income, this may not be enough. Social Security benefits might also be reduced by the time you retire. The program's trust fund is expected to run short in 2035, possibly leading to automatic benefit cuts unless reforms are made. You might need to rely more on your savings.

Read more: Car insurance rates have spiked in the US to a stunning $2,150/year — but you can be smarter than that. Here's how you can save yourself as much as $820 annually in minutes (it's 100% free)

Keep saving steadily even if you think you'll have enough

Even with a strong start to your retirement savings and a higher balance than most of your peers, you can't just take it for granted you're going to end up rich. Retirement calculators with rosy projections can encourage you to spend more now and save less for later.

Investing steadily throughout your career is the only way to ensure your needs are met in retirement. You can't predict the future, and planning to just get by can leave you vulnerable to unexpected events.

A few years ago, who could have predicted that a global pandemic would lead to an 8% inflation rate?

It's better to end up with more retirement savings rather than less, especially if you can save without seriously impeding your current lifestyle. Retirement investments offer tax breaks, and your employer may provide matching 401(k) contributions.

So, don't get overly confident if your retirement calculator shows a big balance. Just keep saving so you're prepared for whatever curveballs life throws at you. If you retire flush with cash, you can spoil your family, support causes you care about, or travel the world.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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