Average 401(k) Balance By Age – Forbes Advisor

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An employer-sponsored 401(k) plan is your best tool for retirement investing. High contribution limits, employer matching contributions and automated investing options make for an unbeatable way to save.

The harder question is whether you’re contributing enough to your 401(k).

Retirement savers are often plagued by planning doubts. How much should I have in my 401(k) by the time I’m 40? Do I have enough savings to retire? How does my balance compare with my peers?

To help you find answers to these questions, we’ve compiled an analysis of the average 401(k) balances by age. Just remember, retirement is not a race. The only person you should be trying to keep up with is your future self.

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The Average 401(k) Balance By Age

The following tables show the latest data on the average and median 401(k) balances by age in Fidelity Investments and Vanguard 401(k) plans, two of the largest defined contribution plan providers in the US

Fidelity administers 24,000 401(k) plans with more than 21 million participants. In contrast, Vanguard administers about 1,700 plans with approximately 4.7 million participants.

Fidelity Average 401(k) Balances by Age

Vanguard Average 401(k) Balances by Age

What Do Average 401(k) Balances Tell Us?

According to Mike Shamrell, vice president of thought leadership at Fidelity Investments, the latest data shows that despite economic uncertainty, retirement savers “stayed the course” and didn’t make significant changes to their retirement savings habits.

Shamrell said that the total savings rate (as a percentage of total salary) across all Fidelity managed 401(k) plans, including contributions from both employees and employers, reached a record 14% in the first quarter of 2022.

“Individuals did not make significant changes to their asset allocation,” he says. “Only 5.6% of 401(k) savers made a change to the asset allocation within their account, and of those people that made a change, more than 80% made only one.”

This trend aligns with expert advice that long-term investors should always resist the temptation to let market conditions impact their investing strategy. Instead, they should focus on the things they can control, such as their individual contribution rate.

Average Balances vs. Median Balances

It’s important to remember that averages don’t always give an accurate picture of data. That’s because outliers on the high and low ends can skew the numbers.

“While it is often thought that with the average, there may be a few big accounts at the high end that are pulling things up, it’s just as true that we regularly have people joining our platform with a zero balance, either because they are just the workforce, are just now joining a company that offers a 401(k) or they may have just switched jobs and rolled their 401(k) savings into an IRA,” says Shamrell.

It’s helpful to look at median balances by age as well to help determine if outliers are present.

“For example, we already have 1.2 million Gen Z employees on our 401(k) platform, and their average balance is $5,300. In looking at the median, Gen Z participants in the 90th percentile still only have $13,700,” Shamrell says.

Average 401(k) Balances Don’t Reflect All Retirement Savings

There’s another key fact to remember when looking at average 401(k) balances. They do not reflect total retirement savings, says David Stinnett, principal of Vanguard Strategic Retirement Consulting.

Participants may also have other savings accounts, such as individual retirement accounts (IRAs), retirement accounts at previous employers or spousal accounts, not to mention additional retirement income sources like real estate, pensions and Social Security. All of these assets combined determine a person’s retirement readiness.

How Much Should You Save for Retirement?

Everyone has different retirement goals and different retirement income needs.

“There are a variety of factors that could impact whether a person’s retirement savings efforts are on track,” says Shamrell. “For example, what your goals are in retirement, where you plan to live, and how long you plan to wait to retire would all factor in.”

While median and average 401(k) balances can be interesting points of reference, comparing yourself to them isn’t the best way to determine if you’re on track for retirement.

Instead, look at your own personal situation to set retirement goals.

“Each participant will have their own unique income needs in retirement, so we’d encourage them to focus less on their balances and more on their target savings rate,” Stinnett says.

Stinnett notes that studies suggest that retirement savers should aim to replace between 70% and 85% of pre-retirement income to maintain their current lifestyle once they stop working.

Helpful Retirement Guidelines

Fidelity has reliable, data-backed guidelines to help you determine how much you should have saved by certain ages.

“We encourage people to aim to save 1x their salary by age 30, 2x their salary by age 35, all the way to 10x your salary by age 67,” Shamrell says.

That said, these are still only guidelines, not rules.

“Your personal savings goal may be different based on various factors, but these guidelines can serve as goalposts that can help you establish a plan to save enough to maintain your lifestyle in retirement,” says Shamrell.

It’s also important to recognize that your 401(k) account balance will fluctuate with market conditions. During bear markets, it may lose value simply because the stock market is down.

Vanguard encourages investors to focus more on the things they can control: cost, diversification, discipline and savings rates.

How to Save for Retirement

The key to saving for retirement is focusing on the elements you can control. Develop a discipline of saving at your target savings rate, and then use cost-effective and diversified investment strategies to help those savings grow.

The best place to start saving for retirement is often your employer-sponsored retirement plan because it offers a streamlined way to save and often provides lower-cost options than you can get elsewhere.

With a 401(k) account, you set up automatic contributions that ensure a portion of every paycheck goes into your retirement savings.

Both Shamrell and Stinett say to save around 15% of your salary each year. If that’s too much, at the very least, contribute enough to get your full employer matching contribution, if you have one. Otherwise, you could be leaving free money on the table.

You can increase your savings rate by 1% to 2% each year until you reach the target of 12% to 15% per year, Shamrell says.

And you don’t need to stop at 15%. If you can save more, do it. The more you put away for retirement today. The faster retirement can come.

Choose the Right Funds to Keep Costs Down

When investing for the long-term, it’s important to keep costs in mind. Even a small change in the expense ratio on your funds can handicap your long-term savings.

Vanguard analyzed a $100,000 portfolio generating a 6% average annual return over 30 years. Paying just 0.37% more per year costs the investor more than $55,000.

Cost is another area where employer-sponsored 401(k) plans shine. They can offer institutional class mutual funds, which carry lower expense ratios than the investor classes offered to individual investors. These funds are also often well-diversified, with hundreds or even thousands of different securities in a single fund.

Check out our listings of the best Vanguard mutual funds and the best Fidelity mutual funds for more insight into low-cost retirement investment options from each company.

“Almost all plans these days default participants into a professionally-managed allocation, such as a target-date fund or balanced fund,” Stinnett says. These can be great one-stop options for retirement investing that will ensure your portfolio always aligns with your age, risk tolerance and target asset allocation.

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The Bottom Line

Once you have your investments and savings rate set, it’s all about staying the course. Consistency pays the best dividends in retirement savings.

Investors who have been participating in a 401(k) plan for the past 15 years saw their average balance rise from $64,900 in the first quarter of 2007 to $482,900 in the first quarter of 2022, according to Fidelity data.

“Remember: Saving for retirement is a marathon, not a sprint, so be sure to take a long-term approach to saving and don’t make changes to your savings habits based on short-term market events,” Shamrell says.

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