Understanding Your 401(k) Balance: How Do You Measure Up?

When it comes to saving for retirement, many of us often wonder how our savings stack up against our peers. Vanguard’s latest report, “How America Saves 2024,” reveals that Americans are saving more than ever in their 401(k) plans, averaging a balance of $148,153 with a median balance of $38,176. But how do these figures break down by age group?

Average vs. Median: What’s the Difference?

The report highlights a significant gap between average and median balances across different age groups. The average can be misleading, skewed by a few individuals with very high savings. In contrast, the median offers a clearer picture of what most of us have saved.

401(k) Balances by Age Group

Here’s a breakdown of average and median 401(k) balances, organized by age:

• Under 25:
  • Average: $6,899
  • Median: $1,948
• Ages 25 to 34:
  • Average: $42,640
  • Median: $16,255
• Ages 35 to 44:
  • Average: $103,552
  • Median: $39,958
• Ages 45 to 54:
  • Average: $188,643
  • Median: $67,796
• Ages 55 to 64:
  • Average: $271,320
  • Median: $95,642
• Ages 65 and up:
  • Average: $299,442
  • Median: $95,425

As you can see, savings tend to grow with age, thanks to longer contribution periods. However, it’s interesting to note that the median balances for those aged 65 and older slightly decrease compared to the 55-64 group, indicating that retirees may begin drawing from their savings.

How Much Should You Save?

Aiming for a savings rate of 15% of your income, including any employer matches, is a widely recommended guideline. For instance, if your employer matches up to 6%, contributing that amount along with your own 6% brings you close to the target.

No 401(k)? No Problem!

Not everyone has access to a 401(k), so what should you do if your employer doesn’t offer one? Consider setting up an Individual Retirement Account (IRA). Available through major brokerage firms like Fidelity or Charles Schwab, both traditional and Roth IRAs provide tax advantages.

IRA Basics

• Traditional IRA: Contributions may be tax-deductible and you pay taxes upon withdrawal.
• Roth IRA: Contributions are made after taxes, but withdrawals in retirement are tax-free.

Automate Your Savings

Consider setting up automatic contributions to your IRA, similar to a 401(k). This can help ensure that you’re consistently saving for retirement without needing to think about it.

Explore Robo-Advisors

If managing your retirement savings feels overwhelming, platforms like Betterment or Wealthfront take the guesswork out of investing. These robo-advisors create and maintain your retirement portfolio based on your financial goals and risk tolerance, letting you relax while your money works for you.

Final Thoughts

As you plan for retirement, bear in mind these insights from Vanguard’s report. Analyze where you stand compared to your peers and utilize available tools and resources to enhance your retirement savings strategy. Whether through a 401(k), an IRA, or a robo-advisor, the key is to take action and take charge of your financial future!

Priya Desai

Writes about personal finance, side hustles, gadgets, and tech innovation.

Bio: Priya specializes in making complex financial and tech topics easy to digest, with experience in fintech and consumer reviews.