How Does Your 401(k) Compare to the Average?
Knowing how your 401(k) balance stacks up against the average is essential for understanding whether you’re on track for a secure retirement. It can help you assess if you need to make adjustments to your savings strategy. Fortunately, you can compare your balance to national averages and find ways to improve your savings.
- Comparing your balance to others helps identify if you’re ahead or behind.
- Making changes to your savings strategy can help you catch up and retire comfortably.
Average 401(k) Balances by Age Group
According to Vanguard’s How America Saves report, 401(k) balances vary significantly by age. Below are the average and median balances for different age ranges:
| Age Range | Average Balance | Median Balance |
|---|---|---|
| Under 25 | $7,351 | $2,816 |
| 25 – 34 | $37,557 | $14,933 |
| 35 – 44 | $91,281 | $35,537 |
| 45 – 54 | $168,646 | $60,763 |
| 55 – 64 | $244,750 | $87,571 |
| 65+ | $272,588 | $88,488 |
- The median balance is typically lower than the average due to a small number of people with large savings.
- Many people, even in the 65+ category, don’t have enough saved for a secure retirement. The ideal target is around 10 times your final salary.
How Much Is Enough for Retirement?
For people over 65, the target is to save 10 times your final salary. Unfortunately, the current median balances fall far short of this goal. For example, with $88,488 in a 401(k), applying the 3.7% safe withdrawal rate would only provide $3,274 annually, which is far from sufficient.
- The 3.7% rule shows that many retirees won’t have the income needed for a comfortable future.
- Most people should aim to exceed the average 401(k) balance to ensure financial security in retirement.
How to Build a Bigger 401(k) Balance
To make sure your 401(k) is large enough for a comfortable retirement, follow these steps:
- Set an investment target: A common rule is to save 10 times your salary, but a financial advisor can help you develop a personalized plan.
- Choose a target retirement age: If you plan to retire earlier, you’ll need to save more aggressively since your savings will need to last longer.
- Determine your monthly savings: Use retirement calculators like those at Investor.gov to calculate how much to save each month, based on your target and timeline.
- Automate contributions: Set up automatic contributions to your 401(k) to ensure consistent saving. Don’t forget to take full advantage of your employer match.
- Invest wisely: Diversify your portfolio and focus on long-term investments to maximize returns.
By following these strategies, you can increase your chances of having a 401(k) balance that’s higher than the average and be well-prepared for retirement.
Knowing how your 401(k) compares to the average is essential for assessing your progress toward retirement. By setting clear goals, automating your contributions, and making wise investment decisions, you can ensure your 401(k) balance grows well beyond the average and provides you with a secure retirement.
