And if you feel that you’re a bit behind in your 401(k) savings, don’t fret. There are some things you can do to catch up.
Retirement savings at a glance
Vanguard data shows that both the average and median 401(k) account balance has increased from at least 2019 until 2021. This comes at a time when 57% of Americans say that inflation has affected their approach to spending or saving, according to Finder’s Consumer Confidence Index.
The following table breaks down the average and median 401(k) balances by age group as of 2022, according to Vanguard’s How America Saves 2022 report, a yearly report that examines Americans’ retirement savings habits.
| Age | Average 401(k) account balance | Median 401(k) balance |
|---|---|---|
| Under 25 | $6,264 | $1,786 |
| 25–34 | $37,211 | $14,068 |
| 35–44 | $97,020 | $36,117 |
| 45–54 | $179,200 | $61,530 |
| 55–64 | $256,244 | $89,716 |
| Over 65 | $279,997 | $87,725 |
From age 25 onward, Fidelity recommends you save 15% of your pretax income each year to maintain your current lifestyle in retirement. Starting saving at this age gives you at least 40 years for your money to grow if you aim to retire at 65. If anything, at least try to contribute enough to get any employer match.
✔ Expert tip: Try to reduce your overhead by living with parents or roommates in your early 20s so you can contribute more to your 401(k).
You may have begun to advance in your career at this stage in your life, which means you might be earning more money. The median annual salary for this age group is $52,936, according to recent data from the US Bureau of Labor Statistics (BLS). If this is the case, consider increasing your 401(k) contribution rate.
Fidelity recommends having at least 1x your salary saved for retirement by age 30. So, if you’re making $40,000 at age 30, you’d have $40,000 saved.
✔ Expert tip: Consider working overtime or a side job to earn extra money and max out your 401(k). For 2023, the 401(k) contribution limit tops out at $22,500.
If you’re in this cohort, you might be making mortgage payments or paying for childcare, both of which can be notable expenses. However, you’ll still very much benefit from compounding if you continue to invest in your 401(k), as you still have 20–30 years before retirement.
Fidelity recommends having 3x your salary saved by age 40. This means if you’re making $55,000 at this age, you should have $165,000 saved. If this is you, your 401(k) would well exceed the average 401(k) balance for those between the ages of 35 and 44.
✔ Expert tip: You may want to pay down any high-interest debt, especially if the interest on that debt is outpacing what you can realistically expect to earn on any of your investments.
According to the BLS, workers in this age group are in the top earning years of their career. Therefore, you may be able to really start growing your 401(k) balance during these years. If you’re 50 or older, you can contribute up to $30,000 in your 401(k) in 2023.
If you reach the maximum 401(k) contribution limit and still want to contribute more to your retirement savings, you can also save via a traditional or Roth IRA. These retirement accounts have a contribution limit of $7,500 in 2023 for those age 50 and older.
✔ Expert tip: If you feel you are behind in your retirement savings by age 50, try to take advantage of catch-up contributions. Those age 50 and older can contribute an additional $7,500 to a 401(k) and an extra $1,000 to an IRA.
From your mid-50s to mid-60s, you’ll start to get a clearer picture of what your financial situation in retirement might look like. You may start to factor in the other sources of income you’ll have in retirement, like Social Security or maybe income from a rental property.
Fidelity recommends having 8x your salary saved by age 60. If you haven’t hit this goal, continue working toward it. If you have, make sure you aren’t investing too aggressively so that you can preserve your capital as you head into your final working years. That is, you may want to have a greater allocation to safer investments like bonds and less to equities at this age.
✔ Expert tip: If you feel like you already have enough saved in your 401(k) and want to reduce your income taxes in retirement, you can also contribute funds to a Roth IRA at this age. With a Roth IRA, you can withdraw funds tax-free in retirement, which should lower your tax burden once you retire. Just note that you have to wait at least five years to withdraw earnings from this type of account.
If you’re still working by age 67, Fidelity recommends having 10x your income saved by this age. This means that if you’re making $60,000 at age 60, you should have $600,000 saved, which is well above the average 401(k) savings for those in this age group.
Many have stopped working by this age, though, as the average age of retirement in the US is 66 as of 2022. If you’ve decided to stop working at age 66, you may be able to rely on Social Security benefits on top of your retirement savings. However, note that Social Security funds are expected to run out by 2035.
✔ Expert tip: Budgeting at this age can help you to make the most of your retirement savings. When making a budget, keep in mind that American retirees spend 30% of their retirement dollars on housing and 25% on food expenses, according to the Employee Benefit Research Institute’s 2022 Spending in Retirement Survey.
How much you should save for retirement depends on how much you’d like your yearly income to be once you retire.
One way to figure out how much you’ll need saved for retirement is to apply the 4% rule. This rule stipulates that you can safely withdraw 4% of your retirement savings per year, adjusted for inflation, without worrying about running out of money.
To illustrate this, multiply your estimated retirement savings by 4% to get your annual distribution limit. For example, if you are retired with $750,000 in savings, you can afford to withdraw $30,000 ($750,000 x 4% = $30,000) in year one. If inflation rises by 3%, your second year withdrawal amount would be $30,900.
One of the best ways to save for retirement is to leverage tax-advantaged retirement accounts. Contribute up to $22,500 to your 401(k) and $6,500 to an IRA in 2023. If you can’t max out your 401(k), save at least enough to get any employer matching contributions, as it’s essentially free money. Then, turn to an IRA, as these accounts offer
If you feel you’re behind, remember that today is the best time to increase your 401(k) contributions, as the earlier you contribute, the more you’ll benefit from compounding.
Once you’re 50, you can use catch-up contributions in your 401(k) and IRA to pad your portfolio even more.
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| Response | Contributions | Balance |
|---|---|---|
| Amount | $7,409.56 | $196,192.48 |
As of October 2023, the average retirement balance sits at $196,192. Each year the average American contributes $7,410 to their 4011K.
If you’ve compared your retirement savings to the average 401(k) balance by age and feel you’re a bit behind, don’t panic. This data should serve as general guidelines as you save for retirement and track your progress.
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