Personal Finance

I'm about to turn 40 with $68K in my 401(k) - is my dream of retiring at 60 still alive?

Christy Bieber

Published: January 26, 2025 1:11 pm

By the time you are 40 years old, you should have at least three times your annual salary saved — and that’s if you are hoping to retire at around age 67, which is the age when you can claim your standard Social Security benefit if you were born in 1960 or later. 

Unfortunately, many people don’t have that much saved. One Reddit user, for example, posted recently to express his concern he might be behind in investing. The original poster (OP) said he was 40, married with two kids, and works for a company that matches 50% of contributions up to 6% of salary. He makes $75K annually, expects a 3% raise each year, and is contributing 10% of his pre-tax income to his 401(k).

Unfortunately, he has only $68K in his 401(k) despite the fact he is hoping to retire at 60. This gives him only 20 years to save up the nest egg he needs. The Redditor is wondering if his dream of retiring on schedule, or at least by age 62, is doomed or whether he will need to make changes to make it happen.

So, is it possible for him to get back on track or is it too late?

Estimating your future retirement savings

When you are deciding if you will have enough saved to retire by your target date, it’s helpful to run some projections to see where you’ll end up based on your current savings rate. 

The Reddit user has provided all of the details necessary to do that, so when we run the numbers assuming the $68K starting balance, $75K salary, 3% annual raise, 6% match, and 7% average annual returns, we can see that at age 60, he will end up with a 401(k) balance of $905,441. If he gives it that extra few years and waits until 62, he would find himself with $1,083,861. 

Sadly, he’ll likely fall short of where he needs to be. His ending salary at age 60 would be $111,446.05 if he gets that 3% average annual raise and his savings will produce only $33,501.32 (assuming he chooses a safe withdrawal rate of 3.7%). That’s just over 30% of his pre-retirement income.   

Now, Social Security benefits are designed to replace about 40% of pre-retirement income and he’ll have those to think about as well– but he won’t become eligible for them until age 62, and even then he may want to wait to claim to avoid shrinking his benefits by early filing.

Unfortunately, even if he can get to around a 70% replacement rate when combining his savings with Social Security, that’s about the bare minimum most experts say you need. Since the OP is retiring early, he’ll want more than the bare minimum, both because his savings will have to last longer and because he has many years until he can qualify for Medicare so he’ll face high insurance premiums in the meantime.

How to get back on track

For this Redditor, and anyone else who is behind on retirement investing, there is only one way to get back on track. You need to save more. The more money you save, the faster your account balance will grow and the more compound interest will work for you. 

The OP still has 20 years left until his ideal retirement age, so if he increases his savings even a little bit, it will make a big impact. Say, for example, he opts to save 15% of his income instead of just 10%.  This would push his nest egg up to $1,106,161. Now, his investments would produce $40,927.96 per month which is around 37% of pre-retirement income. That gives him more of a cushion. He could also try to improve his returns, as an 8% return instead of a 7% return would bring that balance up to $1,254,732. 

The best way to earn a better return may be to invest enough in his 401(k) to claim his full match, then switch to an IRA where he’d have more choices about what to invest in and could potentially pick investments with lower fees and potential for higher gains. 

Ultimately, the reality is that the OP is off track for retirement at 60, but not so off track that it’s impossible to catch up. If he can find a way to save more and ideally boost his returns a bit, he can potentially make that dream of an early retirement a reality.