My Boomer Dad Retired 2 Years Late With Only a 401(k). Is He Unique?

Many Americans reach retirement age with no money saved at all. So if you have a parent who’s retiring with only a 401(k), they’re ahead of the game to some degree if it means they have some money set aside for their senior years.

But what if you have a parent who retired on the late side with only a $2 million 401(k)? You may be wondering whether this is normal or not.

The answer is yes, it is. But you should also know that a 401(k) plan is not your only option for building retirement wealth.

Why so many older Americans only have funds in a 401(k)

There’s a reason 401(k) plans have become so popular. Back in the day, it was common for private-sector companies to offer employee pensions.

But that practice has increasingly fallen out of favor. And these days, most private employers don’t offer a workplace pension.

Instead, the burden of saving for retirement has shifted onto individual workers. And that’s what makes 401(k) plans so important.

Thankfully, a good number of employers do offer a workplace savings plan. And many also offer matching contributions that incentivize workers to fund their 401(k)s out of their own paychecks.

If you have a parent who retired with a $2 million 401(k), you should know that they’re not in a bad place at all — even if that’s their only retirement savings account. Chances are, your parent is entitled to Social Security benefits on top of whatever withdrawals they take from their 401(k). So between both income sources, they may be in for a pretty comfortable retirement.

In fact, if your parent withdraws from their $2 million 401(k) at a rate of 4% per year, that’s $80,000 in annual income on top of Social Security. That could make for a nice lifestyle.

You have options beyond a 401(k)

It may be surprising to see that your parent had only a 401(k) by the time they retired. And if you’re in the process of saving for your senior years, you should know that there are plenty of places to put your money in addition to a 401(k).

For one thing, you could put some of your savings into an IRA. This could be beneficial if you’re a hands-on investor who likes buying stocks individually. That’s because 401(k)s typically don’t let you hold individual stocks, whereas IRAs do.

You could also look at a health savings account (HSA), which offers three types of tax benefits. HSA contributions go in tax-free, investment gains are tax-free, and withdrawals used for qualifying medical expenses are tax-free.

Come retirement, healthcare is likely to be a large expense of yours. So it’s important to have funds set aside for it. An HSA could solve that piece of the puzzle.

You should also consider investing for retirement in a taxable brokerage account. The reason? You risk early withdrawal penalties for tapping an IRA or 401(k) before age 59 and 1/2. But if you’re not sure when you want to retire, and you’d like the option to do so early, then it’s important to have some funds in an account that offers more flexibility.

Consult a financial advisor for guidance

If you have access to a 401(k) plan through your employer, then it pays to at least contribute enough money to snag your workplace match in full. Beyond that, you have choices for spreading your money around.

If you’re not sure which accounts to use for retirement savings purposes, it pays to consult a qualified financial advisor. They can review your choices with you and help you find the best places to put your money. Just as importantly, they can offer investment advice so the money you’re saving for retirement is able to grow.