Personal Finance

I'm almost 40 with just $68,000 in my 401(k) — should I panic?

Joey Frenette

Published: December 17, 2024 9:46 am

Panicking is never a good course of action, even if you think you’re behind on retirement savings. Undoubtedly, many Americans haven’t prioritized contributing to their 401k accounts in recent years, with the surging costs of living and other factors that have limited one’s financial flexibility. 

In this piece, we’ll check out one Millennial who’s feeling behind regarding their retirement goals. Notably, their 401k amounts to “just” $68,000 despite nearing 40. Though this individual may feel the need to hit the “panic button” as they approach middle age, I’d argue there’s little reason to.

Sure, a $68,000 nest egg may not have been as large as one would have hoped to have by 40. That said, this individual is still incredibly young, with more than two decades of earnings ahead of them. Further, there’s a chance they may have yet to hit their peak earnings years. Additionally, they’ve got hefty financial commitments on their plate, with two tweens and a mortgage, making saving up for the 401k a bit of a challenge.

Though $68,000 isn’t a massive sum, it’s far better than the many Millennials who don’t have anything close to one year’s worth of income saved up. With a financial advisor’s assistance, I think a few adjustments can be made so that they can move forward with a plan that works for them.

Key Points About This Article

• A Millennial nearing 40 is worried they’re falling behind on their 401k.
• With some help from an advisor, I’d say there’s a good chance they can get back to full speed.
• Are you getting worried about falling behind on your retirement plans? Take this quiz to see where you stand. ^(Sponsored)

Making the most of one’s 401k employee match

With a $75,000 annual income and a fairly generous 50% match on contributions up to 6% from their employer, though, I believe they have the right foundation in place to catch up with their 401k over the coming years and decades. Indeed, it appears they’re already in a good spot, making 10% contributions (that would ensure they get the full employee match) for their 401k.

While contributing more than the employee match amount (in this case, anything over 6% of their pre-tax income) could help them accelerate their 401k plans a bit, I’m not so sure it’s advisable, especially given the likelihood of some hefty expenditures just a few years up ahead as their children consider post-secondary education. 

Additionally, depending on the interest rate they’re paying on their mortgage, it may be a better move to reduce their debt load rather than contribute more than 6% to a 401k while scoring a return of just 7%. Now, there’s nothing wrong with a 7% rate of return. That said, given that the S&P 500 is coming off its second straight year with more than 20% gains, I think a strong case could be made to revisit the asset allocation of the retirement account, preferably with an advisor by their side.

Though I have no idea what their 401k portfolio asset allocation is, I think it may be a tad too heavy on conservative assets (think bonds and savings). Of course, a visit to the local financial advisor can help the individual ensure that their 401k asset allocation is appropriate for their personal risk tolerance and long-term growth objectives. Either way, I think cutting back aggressively on lifestyle expenses (daily coffees, monthly subscriptions, and vacations) is the best move here. 

The bottom line

That way, the person can maintain their 401k contributions (10%) or even nudge that up by a percentage point if they’re worried their 401k is falling behind.

Either way, careful budgeting, planning, and a visit to a certified financial planning pro seem long overdue for this individual. Additionally, other priorities (think the child’s education or paying off mortgage debt) may take precedence over hitting the gas any further on one’s retirement plans, especially if they’re already achieving the full 401k match from their employer.

Remember, panicking is not a game plan; taking action and hiring a pro to help you out can be the start of creating one!