Chapter 09: Average 401(k) Balance By Age: Am I on Track to Retire?

Most people have a different definition of a comfortable living, so addressing how much you should have in your 401(k) is not a simple black-and-white answer—the amount will vary based on age, lifestyle, and finances.

So far in our retirement series, we’ve covered a variety of retirement and 401(k) basics, like how to save for retirement, the difference between 401(k) vs. 403b and IRA vs. 401(k), and more. But in this chapter, we’ll be going over the average 401(k) balance by age.

So, how much should you have in your 401(k) compared to others your age? Continue reading to learn the average 401(k) balance by age and how you can compare your investments for retirement. You can also use the links below to navigate the post and find the info you need.

• What Is the Average and Median 401(k) Balance by Age?
• How to Prepare for Your Retirement
• 401(k) Balance by Age FAQ
• Key Takeaways: Are You on Track to Retire?
• The Bottom Line

What Is the Average and Median 401(k) Balance by Age?

401(k) balances can average roughly $6,000 at the age of 24 to more than $255,000 at the age of 65. Both average and median 401(k) balances can vary greatly depending on a few factors. This can include how long you have been saving for retirement or whether your company provides 401(k) matching, which is when your employer contributes to your retirement savings based on the amount of your contribution.

While savings are personal, the idea of a “nest egg” will likely make you contemplate what your financial future holds. Retirement might seem like a long way down the road, but time flies faster than we realize. And the earlier you start saving for retirement, the better off you’ll be later in life.

Knowing the average and median 401(k) by age can help you figure out where you stand and how you can be better prepared for the future. Here’s what you can learn about the average 401(k) balance by age from Vanguard’s research on How America Saves in 2021:

Source: Vanguard

Less Than 25 Years Old

• Average 401(k) balance: $6,718
• Median 401(k) balance: $2,240
• Contribution rate: 8.1%

Although many people younger than 25 years old are new to the workforce or are not in a job where a 401(k) plan is offered, their average 401(k) balance increased 23 percent in 2020 compared to 2019, and 49 percent of those who are eligible for a 401(k) plan are participating in it. This indicates that this generation is indeed planning for retirement early on.

25-34 Years Old

• Average 401(k) balance: $33,272
• Median 401(k) balance: $13,265
• Contribution rate: 10.2%

From 25 to 34 years old is a common time to start aggressively putting money in your 401(k) savings, since you have likely been in the workforce for a couple of years at this point. In fact, this age group saw a 23 percent increase in average retirement savings in 2020 compared to 2019, with a whopping 79 percent of eligible workers participating in a 401(k) retirement plan.

35-44 Years Old

• Average 401(k) balance: $82,582
• Median 401(k) balance: $32,664
• Contribution rate: 10.6%

If you haven’t yet started contributing to your 401(k) or just recently joined a company that offers 401(k) matching, 35 to 44 years old might be the time to start considering investing in a 401(k) and potentially maxing it out, meaning you would be contributing the highest amount allowed for the year.

The possibility of compounding interest on the retirement plan has attracted 82 percent of eligible workers in this age group to participate, with an increase of 13 percent in the average 401(k) balance in 2020.

45-54 Years Old

• Average 401(k) balance: $161,079
• Median 401(k) balance: $56,722
• Contribution rate: 11.3%

When you hit your 50s, you become eligible to start making larger contributions to your 401(k). Take advantage of this larger contribution of $6,500, sometimes called the “catch-up contribution,” as there was a 19 percent increase in 2020 in the average 401(k) balance among 45-54-year-olds, with 83 percent participating in a 401(k) plan.

55-64 Years Old

• Average 401(k) balance: $232,379
• Median 401(k) balance: $84,714
• Contribution rate: 12.8%

In your late 50s and early 60s, you will likely have a better idea of what your retirement savings are and you might start making more specific plans for your future. If you’re still working at a company that offers 401(k) matching, this is an opportunity to increase your savings for a couple of years more. In fact, this age group saw a 17 percent increase in the average 401(k) balance in 2020 compared to 2019, and 84 percent of eligible workers are still participating in the plan.

65+ Years Old

• Average 401(k) balance: $255,151
• Median 401(k) balance: $82,297
• Contribution rate: 13%

Although many workers plan to retire at 64, the average retirement age is 62, which is probably why there was a decrease in workers participating in a 401(k) plan from 65 and up in 2020, which is currently at 74 percent. Although fewer people are participating, this is still a good time to continue contributing if you’re able, as the average 401(k) balance in 2020 increased 17 percent from the previous year in this age group.

When you start contributing to your 401(k), it’s important to leave that money be if possible. Early withdrawal from a 401(k) can have a myriad of consequences. Your taxes will be withheld, you may be penalized by the IRS, and you’ll lose thousands in potential growth. If you want to make the most of your 401(k) plan, you may want to leave your money in your account for as long as possible.

How to Prepare for Your Retirement

Not everyone gets the opportunity to invest in a 401(k) early in life. As soon as it becomes available, it’s best to consider taking advantage of this benefit. Knowing the average retirement account balance by age can help you make a financial plan for retirement so you have an idea of how much money you need to have saved up. It’s also important to figure out your retirement budget. You can use financial calculators, such as a retirement calculator, to see what your retirement savings progress is and what your budget should look like.

As of 2022, individuals under 49 can legally contribute $20,500 per year. Those 50 or older can save an additional $6,500 as a catch-up contribution. Starting early will allow you to have more saved by the time of retirement.

Improve Your 401(k) Balance

Improving your 401(k) balance depends on how well you can handle your finances and how much you can contribute to it. Doing your research for the best interest options for your 401(k) plan can help you start building compound interest, which will result in a higher balance.

If you think you’re at a good place with your finances and making sure your living expenses and debts are being paid off, it might be worth considering maxing out your 401(k) contributions. According to Vanguard, only 12 percent of 401(k)participants maxed out their 401(k) contribution limit of $19,500 in 2020, and you could be one of them.

Whether you start small or contribute close to the limit, consistently contributing to your 401(k) and making sure your plan meets your goals will help you improve your average 401(k) balance and save more for retirement.

Prioritize Your Retirement Savings

Whether you started saving late or are frugal with your finances, there are several things you can do to increase the amount of money you put toward your 401(k).

One thing you can do is add one year of gross salary saved every five years. So when you’re 30, you’ll have saved one year’s worth of your salary; at age 35, you’ll have saved two years’ worth of your salary; and at 40, you’ll have saved three years’ worth of your salary. Keeping your savings rate at top of mind can help you ensure you’re saving enough every month compared to your gross salary.

• Plan to save early: Although it can be hard to save, starting a habit of budgeting and saving early on can help you increase your retirement funds and take advantage of compound interest. If you can, you may want to put away a portion from your paycheck to savings each month. After looking at your finances, consider maxing out your contributions so you can start saving early and aggressively.
• Start living on a budget: Take a look at your retirement budget and lifestyle. Maybe it’s time to adjust your spending habits or cut back on unnecessary spending. Tightening up your budget can free up funds and allow you to save more.
• Increase your income: This may be easier said than done, especially in your later years. Consider if it’s time for a raise if you can acquire a new set of skills that will increase your annual salary, or find alternative ways to make money at home or through passive income.
• Modify your retirement lifestyle: Ask yourself if your retirement budget is realistic. Will you be spending money during your retirement the same way you are now? Or perhaps you’re already retired and can cut back on unnecessary expenses. Whatever the case may be, make sure your future lifestyle and finances align. Depending on what your retirement savings are, you may have to reconsider where you’re going to retire. Fortunately, there are plenty of places where you can retire on a budget, and still live lavishly.
• Pay off high-interest debts: It’s common for people to carry over large debt into their retirement years. High-interest credit cards, personal loans, and lingering student loan debt are types of financial obligations that can keep your hard-earned funds tied up and away from your 401(k) account. It can help to start paying these off as quickly as possible.

Make compound interest work for you: Compound interest is a simple concept that can rapidly cause wealth to snowball. It happens when the interest that accrues on an amount of money, in turn, accrues interest itself. Do your research to see which 401(k) plans have the best interest-bearing options and avoid making investing mistakes that can limit the potential of your investment accounts.

Learn From Your 401(k) Balance

Although learning about the average 401(k) balance by age might help you understand where you stand compared to others, it won’t help you analyze your retirement situation altogether. Since everyone has different finances, lifestyles, and unexpected emergencies, it’s important not to use 401(k) balance by age as your only benchmark.

Instead, you can use it as a way to motivate yourself to start making better financial decisions and contribute more each year. One way to benchmark your savings is by using a retirement calculator that will give you more information on how much you will have saved by a certain age and how much you should be saving monthly to achieve your retirement goals.

Bottom line: Saving early can help you plan for financial success and set you up to be more prosperous later in life.

401(k) Balance by Age FAQ

Here are some commonly asked questions about 401(k) balances by age.

How Much Should I Have in My 401(k) at 30?

By the time you are 30, you may want to aim to have a 401(k) equal to about one year’s salary—so if you make $50,000 a year, you’d want to have $50,000 saved in your 401(k) account.

How Much Should I Have in My 401(k) at 40?

By age 40, you may want to aim to have three years’ worth of salary in your 401(k)—so if you make $70,000 a year, you should have approximately $210,000 saved in your 401(k) account.

How Much Should I Have in My 401(k) at 50?

By age 50, you may want to aim to have roughly five years’ worth of salary put away. Assuming your annual income has increased to $80,000, this would mean that you’d want to have saved $400,000 in your 401(k) account.

What Is a Good 401(k) Balance at Age 60?

At the age of 60, you are getting closer to your retirement age, so you may want to aim to have around six to seven years’ worth of your salary put away at this point. If your annual income is $90,000, this means you would have around $540,000 to $630,000 saved up for retirement.

What Is the Average 401(k) Balance at Retirement?

According to Vanguard, the average 401(k) balance at the time of retirement, meaning 65 years and older, in 2020 was $255,151.

How Much Does the Average American Have in Their 401(k)?

401(k) balances differ depending on your age. For perspective, the average American who is younger than 25 has $6,718 in their 401(k) while the average American who is older than 65 has $255,151 in their 401(k).

How Much Do You Need to Retire Comfortably?

How much you need to retire comfortably isn’t black-and-white because the cost of living looks different for each individual. Consider what it takes to live comfortably and maintain your lifestyle. Ideally, you want to avoid having to make sacrifices and live your best life during retirement.

Key Takeaways: Are You on Track to Retire?

• 401(k) balances can average roughly $6,000 at the age of 24 to more than $255,000 at the age of 65.
• Knowing the average and median 401(k) savings by age can help you figure out where you stand and how you can be better prepared for the future.
• As soon as a 401(k) becomes available to you, it’s best to consider taking advantage of this benefit.
• There are various ways to prepare for retirement, such as:
  • Improve your 401(k) balance
  • Prioritize your retirement savings
  • Learn from your 401(k) balance
• Doing your research for the best interest options for your 401(k) plan can help you focus on starting to build compound interest.
• Saving early can help you plan for financial success and give you peace of mind.

The Bottom Line

Most of us look forward to our retirement years, where the money we’ve worked so hard for is now working for us. A 401(k) is one way to achieve a nest egg, so it’s important to take advantage of this benefit if your employer offers it. Planning for a comfortable retirement takes time, due diligence, and budgeting. It’s important to consider your future lifestyle and know where you stand financially by looking at the average 401(k) balance by age, so you don’t have to worry when you reach your golden years.

If you need a refresher on some of the 401(k) basics, you should go back and reread the chapters that we covered earlier in the series. At this point in the series, you should have a better understanding of what a 401(k) is and how it can benefit you. In Chapter 10, we’ll cover how to use a retirement calculator to plan for retirement.

Source: Experian | Vanguard

This is for informational purposes only and should not be construed as legal, investment, credit repair, debt management, or tax advice. You should seek the assistance of a professional for tax and investment advice.

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