How Much You Should Have in Your 401(k)—By Age

Welcome everybody to another episode of the Main Street Business podcast. My name is Mark Kohler and I'm here with the highly intelligent Matt Sorenson. And we are going to share with you the exact amount you need to have in your 401k or IRA to have a great retirement. Now, we're both tax attorneys, bestselling authors, investors, ourselves, business owners, and we're in the trenches every day with our teams and, and we know exactly what you need to have to have that perfect retirement.

Now, IRAs and 401ks are amazing vehicles to save for long term wealth. There's a reason people live on their IRA and 401ks in retirement. We want to make sure you're one of them. There's tax benefits when you put the money in. You don't pay taxes. When you're growing and building that account over 10, 20, 30 years, maybe you have a company, 401k where you work, the company puts free money in and matches that and you could be doing that for decades to grow and build your wealth. Now, I know some of you are like, Matt, Mark, I'm behind though. I'm discouraged. Guys, we've got strategies. That's the purpose of today's podcast. We wanna let you know where you need to be and if you're behind, how do I catch up? We're gonna go over that in today's podcast.

Now, the steps of this, and we're gonna get right into it, is it's really a four step or a circle, a wheel, whatever you wanna say, four things that need to be happening. Number one, we've got to be contributing and saving. We're gonna talk about that. And then what structure do you have or want to have or should have? Maybe it is a 401k at work, maybe it's a solo 401k in your small business. Or the incredible power of the Roth structure, which could be a Roth 401K or IRA. And then we need to talk about what's the basic investment all of you should be undertaking. We're going to turn to the amazing Warren Buffett or even Tony Robbins, who's now in that space giving us just the basic investment that's going to help get us there without having to work too hard. And then finally the fourth piece is you want to go next level, build it faster, build it bigger. There's a concept called self directing where you can invest in what you know best. Now, if you can bring all four of those things together, the contributing proper structure or structures, because you can Double down on some. Then the baseline investment you should have without chasing your tail. And then the next level investing with. When you get excited, you bring those four together. Holy crap. You can double the numbers we're giving.

All right, should we throw the number out? How much do you need to have in your IRA or 401k? Pray tell me age 65. That's the number we're throwing on this to have a good retirement. Like a retirement you're looking forward to, not one you're going to dread because you're going to be, you know, we want you to be down at Del Boca Vista. You know, we want you to be living the dream here. All right, $2 million. That's what we're saying. Minimum of $2 million.

Why do we say that?

Age 65.

Age 65. $2 million. Now why do we say. There's several reasons why we say that. I'm going to go with the touchy feely first. Okay. And then. And because we want you to feel motivated here. And then we're going to get into those again. The contribution structuring, baseline investing and self direct industry is those, those strategies. But quickly, many of you are going to say, hold it, I need more than 2 million. I've done the math. I have a lifestyle I want to live.

I get it.

Some of you live in a different part of the country. Two million would not be enough for some of you. Like, holy crap. Every analysis I've done, I don't need 2 million. We get it. There's different ages, lifestyles, parts of the country, goals you have. We get it. But when you have at least 2 million, you have something to fall back on. By then Social Security is going to be kicking in. Maybe you have equity in your home, maybe you have some rental properties. But the point is you've got 2 million to feel relief. You've got, you're not going to be as stressed. You're going to feel more freedom to do more things, to build more money at that age rather than be in DEFCON 3. And we meet so many people that don't even have $100,000 in savings at age 65. And it is scary.

Yeah. And you know what one of the biggest culprits is? Small business owners. They just don't put money in an IRA or 401k. They don't live in corporate America or ones right there laid up for them. And they reinvest their money in their business. And so for many of you, we've got some strategies because I know many of you are in that bucket. We've got some strategies to supercharge how much you can get in and save for retirement. But let me go down a little side. You did the touchy feely side.

That's good. I'm a touch feel guy.

This is more the, you know, this is more the Matt and Mark sauce. I'm going to be the more analytical here. Okay. There's some called the 4% rule. I want to make sure there's a 4% rule a lot of financial advisors follow that basically says plan on living off 4% of whatever money's in your IRA or 401k. So if you got 2 million bucks, you can live on 4% of that. 4% of 2 million is 80 grand annually.

And that's where the 2 million stays there.

Yeah, the 2 million stays. We're not depleting it.

Yeah.

Now as you get into your set, late 70s, 80s, 90s, that 2 million, you can start depleting, you can start accelerating that. Maybe you got long term care, you're in a nursing home.

I think in Royal Caribbean cruise, holiday cruise.

I think that's celebrity cruises crowd.

That's. Yeah. Then we can dive into that. Yeah, okay. All right. Okay.

Well, let me hit the 4% rule because here's what else is happening. We want to assume you can at least get 6% return. I'm just saying this is the typical financial advisor advice. I'm going to give you my perspective here at 6%. If I'm taking 4%, I'm still growing that account, 2%. And why do I need to do that? Inflation. We felt that this last year. 2 million is not the same as it is going to be in 10 years. So you still need that account to be growing a little bit to battle inflation. Now, I like the 6% rule because I think you can get 8%. We're going to be talking about what you can invest in as kind of a default investment, let's say at the s and P500 fund, making 8% here when I get into that. But then I could be living off 6% of that. So now that 2 million I'm getting 6% I can take out. I still got a little 2% helping to grow it, combat inflation. Now I'm getting 120 grand a year I can live off of. And like you said, Mark, Social Security is going to start kicking in. Maybe that's another few thousand bucks a month. Now you're at 15 grand a month. Maybe you have paid off your home and there's some equity in it. But you don't have a housing payment either. But you've got equity you can maybe draw on to. Everyone's in a different boat and situation. Maybe you sold your business, you got the rental parts, everything's a different situation. But that's the analytical piece of it. I like to think of the 6% rule, not the 4%. Okay.

And I'm going to just say on the 4%, what I like about it too is it's going to typically take into account taxes because at 4% of that 2 million, you're going to have a rate of return. You're going to pull some cash out and you're going to pay taxes and, and then 4%. So on $2 million, that means you're living on 80,000 a year after taxes before anything else. In 80,000 a year you'll survive. We have clients that can't even get that type of income at that age and they're freaking out. Okay, so now what are the contribution amounts? We've got this. You're going to love these calculations. I'll do the first one of what you should be putting in to get to 2 million at these ages. Assuming you're a zero, then you can say where you should be and maybe you can do that. Okay, so first chart, here's the chart. How much should I be saving to have a $2 million retirement at age 65? Now we're talking about in a 401k or IRA. We're not talking about any other investments, just in those vehicles that tax deferred or tax free structure 2 million. If I'm age 25 starting at zero, that is 600amonth. That's not too bad. I can do 600amonth. And at age 35, it's 1400amonth. So if I'm starting at zero at age 35, I'm going to need to be putting away $1,400 a month. That could be a pretty nice car payment. So, you know, you got to start thinking like that. Age 45 starting at zero. If you're age 45 watching this and you've got zero, you need to be putting away 3,500amonth. Now that's a house payment of rent.

But yeah, that's 42 grand a year. And yeah, that adds up, you know,

adds up, adds up. And so now you're doing a side hustle to make 3500 to just fund your retirement. But you're dedicated, you're determined because in 20 years, you're going to be 65 and you want that 2 mil. So 3,500amonth at age 45. If you're age 55 staring down that barrel with zero in your IRA or 401K, maybe you depleted it. Pay for your kids, college.

How. Different topic.

Different topic that we're at 11k a month, 11,000amonth, 132,000 a year. We know people that are in business at age 55 just taking their profits to build retirement. So they're in that boat. So that's 11,000amonth going into retirement. Now, we're using some very complex structures because we want it still tax deferred or tax free, but 600amonth, 1400amonth, 3500amonth or 11,000amonth, depending on those four. Age starts at zero.

Yeah. And we're assuming an 8% annual rate of return. The reason we're throwing in that is because you can just do the boring S&P 500.

That's the big reveal on our next point. Yeah, yeah.

Well, I say that because how do these numbers add up? I mean, how does it add up? I mean, we got to.

That's true.

We got to finish the equation here, guys.

Eight percent.

The big reveal is the S&P 500.

Whoa. Hello. Yeah, yeah. Buckle up, hold on to your butts.

But sometimes boring is okay, guys. Sometimes boring is okay. And so many people are thinking, well, I got to find the next Uber. I got to go self direct and find the next home run and real estate investment dealer. Whatever I'm doing with a self directed IRA or 401k, guys, we love that, we want you to do that. That is a way to supercharge and accelerate your account. But don't get stuck waiting for that and do nothing. Start saving and contributing on these numbers like Mark said. And if you're doing it, we're assuming you can at least get 8% by doing the S&P 500 fund. The numbers track out on that. That's even what Warren Buffett says to like Mark mentioned Tony Robbins, Peter Mallouk, they're like, if you don't know they do the S&P 500, just buy spy or one of those funds that's tracking that and you get an 8% annual return. Now this is over time, of course, not every year. It can go up and down a little bit. All right, now here's the difficult part when you look into these numbers because you know, if you're at 25, it's nice that I'm only doing 600amonth, $7,200 a

year.

Right. And when I'm 35, I'll be at 110K. When I'm 45, I'll be at 350K. When I'm 55, I'll be at 894,000. And I'm going to be at 2.1 million at 65.

Yeah. And let me repeat, say that a different way. If you already started saving at age 25 and doing approximately 600amonth, you should be at 110. If you're 35 right now, you should be at 350. If you're 45 years old and can continue to be doing what you've been doing, that's 600amonth. And you will then be at 845,000 at age 55, assuming you followed those saving models. Now, if you're at age 35 and started from zero, where should you be at 45?

Yeah. If I'm at age 35 at 45, I'm going to be at 256,000. Okay. And if I'm 45, at 55, I'm going to be at 640K. Now remember here is like at 45, I'm still putting in $3,500 of money every month. But if I start at 25, I'm still just doing 600 because I got ahead of the game. I got more money working for you. I think Dave Ramsey calls this the eighth wonder of the world, compounding interest. The more money you have invested. Now your money that made money is making money on the money that made money for you 10 years ago. And it just keeps building. And you have all this compounding. That's why you're getting less dollars in to get to the same result. So if you're waiting too long, that's why when you're 55, you got to put 11k. And you only got 10 years of compounding investment growth as opposed to 40. So the first principle and lesson, and this, everybody hears it, of course, and start early. When's the best time to plant a tree? Yesterday. When's the second best time? Today.

Now. Now, if that was a lot of garbage goop, let me just not.

I was great.

It was great. But we want to restate it. And even a more simpler way, you should, at age 55, have between 600 and $850,000 in your IRA 401k. We don't know what you've been saving, what you have with the method and all that, you should be in that $700,000 range or more at age 55. So we got to get caught up to that. And you can look at these tables. If you're 45 right now and you have been doing some savings, you should really be in the 250 to $350,000 level. That's what you want to be thinking. If you're under 350,000 in savings in your IRA and 401k and you're 45 years old, this is your wake up call. We can get. Let's get back on track. And it doesn't take a lot. At age 55, you should have around that seven to 800 grand. And if you're below that, we've got to have a more serious talk. Yeah.

One rule that's really important to know is the rule of 72. Okay? This is a equation. You can inp to tell you how long it takes for your money to double. So for example, at an 8% return, you divide 72 by 8. We get nine years. So if I don't put any new money in at an 8% annual rate of return every nine years, my money's going to double. So if I am sitting at 500k in my account, let's say, and I'm 45, in nine years, I'm going to have a million bucks. So at age 54, I'm going to have a million bucks. If I stay on that and that million bucks again, I'm not putting any new money in. I'm just the money's growing and compounding. I'm going to be at 2 million at age 63. So another good metric when you're thinking about, well, where am I at right now? How's my money going to be in the next nine to 10 years? Think of the rule of 72. At 8%, it's going to be doubling every nine years.

All right? Now that's how much you should be putting away or should have. Now let's get into a little more strategy here. Where are you putting that money? Well, again, lots of options. Now, I'll tell you. I'll give you my take throughout your. My take is the baseline is that you should at least be funding your own individual IRA and preferably a Roth. And we come to the 401k at work or 401k in your small business. But every year, and Matt really taught me this. The friend and brother he is to me is like Mark, you just got to do it every Year. You just got to fund your Roth every year. And as soon as you can at the beginning of the year, don't wait till December or April 15th. Get that money in your Roth IRA working for you as fast as possible. And by the way, everybody, no matter what age and however much money you're making, you can always have a Roth. A backdoor Roth 401k is a very common and surprisingly unwell known strategy. I was talking to a financial advisor the other day that said, yeah, I wish more of my wealthy clients could do a Roth. I'm like, where did you go to school? Holy crap. So anyway, the point is everybody should at least have an IRA or a Roth. And funding that every year, that's where it all starts. That's just the basic that we can all get our head around. I love the apps that help you do that. Whether it's even your Schwab app, your Acorns app, or Robinhood app, they will help you do those auto deposits and just out of sight, out of mind. But if you can compound that or double down. Now we start playing with 401k.

Yeah.

Wow.

You were disappointed that the financial advisors didn't learn the backdoor Roth strategy in school.

Well, sorry, where did you get your training at your financial advisory channel?

Are you watching? Not this one. Okay. The backdoor Roth is out there. Everybody should know that. We've got some other videos on that anyways, we can get on a tangent there. But here's what I think is important too. I want to just on strategy too, if you have a day job, one of the things we always like to teach, and this is kind of a mark one I like is the matching out. Okay. I like at least be throwing that 6k or 7k now. Sorry, in your Roth or traditional IRA, but if you do have a day job where they offer a match where they're giving you free money, incentivizing you, if you put money in will match it. That could be thousands of dollars every year in free money that you return on that match.

Is it 100%?

Man, I wish I could get 100% rate of return. I just can't find a good investment. Well, contribute your 401k. Get the damn match already. Okay. And so we like that matching out. Now the reason we say matching out is put in as much money as you need to in the 401k to get the full match. A lot of companies you kind of like, at a certain point, they're like, that's enough. We're not Putting any more match in?

Yeah, this 2% thing, 3%, 5%, you guys.

So get the match and then get out. And then make sure you've maxed out your Roth ira. Maybe your spouse's accounts maxed out, maybe you've got an HSA that you're saving. Because guys, remember that HSA can be in the equation here with your IRAs and 401ks, because what is the biggest expense you're going to have in retirement? Medical. And it'd be nice to be able to lean on that at hsa. So all these little buckets of money we can put dollars into, then come back to the 401k and throw more money in. You're not getting a match. But I'm getting that tax deferred if I'm doing traditional or that tax free growth if I'm doing Roth in this tax deferred bucket again, or tax preferred bucket, I should say, for long term wealth building.

And I'm just going to summarize the strategy of structure with this. There are multiple structures that can be used in conjunction with one another at different times in your life. Maybe you're having a good year, Grandma left you inheritance, you sold a fix and flip. You had a rental property that you cashed in on. Those are the years you to not go blow a bunch of money on a, you know, take a year off and live in Costa Rica or go on a worldwide cruise. That's the year where you're like, okay, I'm going to double down. I'm going to really throw down. Because if you can get the matching, use a combination of the hsa, ira, Roth, la la la la la. All of a sudden these estimates we've given you, you've blown them out of the water and you're ahead of the curve. And this is what the wealthy do. So be open to learning those structures. This is why, listening to our podcast and all the information we throw out there, so much of it for free. Please continue your learning. At the end of this video, we're going to give you some additional videos and to expand on that now, the next one was what's your default investment? So you found your structure or structures? You know how much to put in? Well, we've already had it. The default is everywhere you go. Click S&P 500 index fund, whether it's an ETF, mutual fund, just keep it simple.

Yeah.

Why? Why, Matt?

Yeah, and we're not financial advisors. But guys, this is the standard advice out there and there's a reason to Standard advice. This is the 500 biggest companies in America and it's just been tracked for decades. And when some people get into analysis paralysis or they go, they go pick individual stocks and you could have picked the one that's the winner, you could

have picked the loser.

And so a lot of people have gravitated that when you don't know or you don't have anything better, go to the default s and P500. I mean, I'm just saying, even myself, when I'm in between other investments and stuff with my retirement account dollars and non retirement account dollars, that's where I'm at, you know, and so, and I, so I just believe in it because I want that money working and growing. You can pull it up and see the history of it and how 8% is totally achievable in the S&P 500.

I love it. All right, now the last piece of this, in this kind of four part, bring it all together equation for success is next level. And this is what gets really, really exciting. Because once you get your feet under you, you're learning and it's exciting. You kind of get some wind behind your sails, you're saving, you're like holy crap. And you see opportunities start to arise. Oh, I could do a trustee note over here for this little real estate project. I could buy into an oil and gas thing. I could maybe buy some crypto. I could maybe go do some precious metal. You see an opportunity that's unique to your space or your world. Guess what? Your retirement account can invest in it. And this is where we see clients now getting 10, 12, 15% rates of return or more. It's the concept of called self directing. And it's the last piece in the equation that our successful clients use, as we do too to really break out of that s and P500 at 8% and double it. Now your numbers even go more off the chart once you learn that concept. So Matt, you kind of believe in self directing, right? I mean, have you heard of that?

I wrote a fricking book about it. Self Directed IRA hambok. You know, Mark and I co founded Directed IRA Directed Trust Company, fastest growing Self Directed IRA Co. Inc. 5000 award winner, 1.6 billion in assets. And so Whirlpool clients do this every day in their IRA or 401ks. And yes, you can buy real estate. You could invest in a small business, a private fund, do some private money lending with your own IRA or 401k dollars. You don't just have to buy The S&P 500 now buy the S&P 500. We want to get started. We want you to save. And for some of you, that may be where you stop, but there's more. You do have options, particularly if you're entrepreneurial. Yeah, the entrepreneurial investor. Maybe you're a real estate investor, a small business owner. A lot of them love to self direct. They get more control of it and they can get a better return. Now here's why a better return really matters. If I can get 12% in my self directed account, which we see very often, I get it in mind, you can see it very often right now. My money now doubles. I'm just doing the rule of 72 every six years at 12% rather than every nine.

Okay?

And so every six years rather than nine at an 8% rate of return. So now I'm getting that compound. And you think how that is over investing or 20, 30 years of a retirement account that is just huge. Because what we want to do is we want our money to work harder for us. We, we don't want to work harder. And so if I get a better return on my investments that take you on more risk, you got to be careful there. Of course we're going to accelerate and have a bigger retirement account. And so we just want to let you know that you don't just have to think of the stock market. You may be a stock market wizard and be like, I get 12% in the stock market because I can do that. Fine, okay, maybe. But there's other alternatives. Wall Street's not telling you about it. It's called self directing. We have a whole podcast, a sister podcast called the Directory Podcast. Just about that.

Yeah. And I think another way of saying what Just Matt said in a simple way is park your money in the S&P 500 index fund until something better comes along. And with just that simple mindset, you've unlocked the universe and your mind to see things, to see opportunities that might come up and know, ooh, my retirement account could do that. All right, well, thanks everybody for listening today. Such powerful information. We hope it's impacted you in a major way. And I just want to share another video with you. We have multiple videos and podcasts, hundreds of them, but one in particular I think is important. I'm going to share one. Matt, you can share one. The 401k for business owners. For small business owners, there's this 401k called the Solo 401k. And you may have a 401k at work and a side hustle. 40 million Americans have a side hustle. You can have two 401ks. Let's throw down another one inside your own side hustle. It's called the Solo 401K. I want you to click down below right here, check out that video. If you have a side hustle, you have got to watch it. Because I don't want you living on your side hustle. I want you to use your side hustle to get out of debt. And then I want you to use your side hustle to plow away money for the future so you can live the retirement of your dreams.