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What’s an average 401(k) return?

Learn what to expect, including what role your asset allocation plays.

Though it’s hard to pinpoint exactly what the rate of return on your 401(k) plan will be, annual returns range from 5% to 8% on average.

Keep in mind this is the average rate of return and is based on a common moderate investment portfolio consisting of 60% equities and 40% debt/cash. Your approach to risk and how you allocate your assets can significantly impact the rate of return you can expect from your 401(k) plan.

4 steps to calculate your 401(k) return

Planning for retirement is easier if you know how much you’ll have in your pot, which is why it’s important to figure out how much your 401(k) return will be. And not just as a lump sum when you retire, but what your investments are earning each year.
Calculating your 401(k) return is more complex than working out the average annual return. Since you’re likely to be making regular contributions along the way, you can’t just take the end balance and divide it by the starting balance.
Get an idea of how to calculate your 401(k) return by completing the following steps:

  1. Look at your 401(k)’s summary annual report and write down the current value of your investments and the original value of the 401(k) at the beginning of the year.
  2. Deduct the original value from its current value. Then divide this by the original value and multiply by 100. This is your annual rate of return.
  3. If you need to calculate for a two-year period, take the number you got from dividing the adjusted current value by the original value and use the power key on a calculator to raise the number to ½ power.
  4. Take the final answer, subtract 1 and multiply the result by 100.

If you need to work out your return for a three-year period, you’d raise it to the ⅓ power. A four-year period, raise the number to the ¼ power and so on.
However, keep in mind that the longer the period you’re measuring, the less accurate this basic calculation will be. But it will give you a rough estimate of what kind of return you can expect.

5 factors that can impact your 401(k) returns

How your 401(k) performs depends on several factors, from how consistent you are with your contributions to what you invest in. Here are some factors to consider:

  1. Consistent contributions. Consistent contributions tend to produce the best average 401(k) returns over time. Think about how much you’re able to contribute in order to maximize your potential returns.
  2. Asset allocation. This is a key determining factor. You could potentially look to have an aggressive growth portfolio and invest more heavily in stocks, or you could be cautious and balance your portfolio with some debt instruments or cash assets. Your ideal asset allocation depends on your age, target retirement age and risk tolerance.
  3. Investment options. Where you invest your money can also have a big impact on how your 401(k) performs. You will find that your investment options are usually curated by your plan provider and your employer, typically giving you between eight and 12 investment options. Mutual funds are by far the most common and many are index funds, which means your returns will mirror an underlying benchmark index.
  4. Retirement age. As you approach your retirement age, you should seek greater stability with your investments. In your 401(k) plan, there is typically a common type of mutual fund called a target-date fund. This allows you to choose a target retirement date, then the fund will automatically rebalance to bond and cash equivalents.
  5. Fees. 401(k) plan fees typically come out of your total assets — so the higher the fees, the lower your return is likely to be.

5 tips to maximize your retirement funds

The best way to approach planning for later life is to do your research and talk to professionals who can help guide you to a strategy that fits you. Some tips for how to maximize your retirement savings include:

  1. Hire a financial adviser. They understand which financial options are available and can help you utilize more advanced strategies to grow your investments. Make sure you understand what fees you’ll be paying before getting started.
  2. Open an Individual Retirement Account (IRA). If you’ve maxed out your 401(k) contributions for the year, you can look to open an IRA. This tax-advantaged investment account allows your money to grow tax-free, just as it does in your 401(k).
  3. Evaluate your budget. See if you can increase your retirement contributions. In 2022, employees under age 50 can contribute up to $20,500 per year to their 401(k).
  4. Tax strategies. If you want to maximize your retirement pot, looking at how to reduce your 401(k) taxes can make a difference. Some potential strategies include rolling a 401(k) account into another 401(k) or borrowing from your 401(k) instead of making an early withdrawal.
  5. Reallocating assets. Asset allocation can play a huge role in what rate of return you can expect from your 401(k) plan. Typically, the more you invest in stocks, the higher the risk, but there’s more potential for growth. On the flip side, you can opt to keep things stable by investing in bonds, but this typically means lower returns.

Asset allocation examples

Here are some examples of returns you might expect from different asset allocation models.

Portfolio typeAsset allocationAverage returnRisk — Years with a lossKey takeaway
Income100% Bonds6.1%19 of 95If you have a minimal appetite for risk — for example, you’re reaching retirement age — investing more heavily in dividend-paying stocks and coupon-yielding bonds can provide stability with lower returns.
Balanced50% Stocks
50% Bonds
8.7%20 of 95Having a moderately aggressive/balanced portfolio allows for consistent growth and reduced potential volatility. Here’s where you see average returns of 5% to 8%.
Growth100% Stocks10.3%25 of 95If you have a long runway before retirement, you may want to allocate more to stocks to achieve a potentially higher rate of growth. However, this leaves your investments open to large short-term price fluctuations.

Average retirement balance

How much do you have for retirement?

ResponseContributionsBalance
Amount$7,409.56$196,192.48
Source: Finder survey by Qualtrics of 2,033 Americans

The average retirement balance as of October 2023 sits at $196,192, with the average annual contribution being $7,410.

Find a financial adviser

Getting some professional financial advice can help you pick the right kind of strategy for your investments and maximize your retirement savings. A financial adviser can help you identify your financial goals and how you can achieve them. Use our table to find a financial adviser who suits your needs.

1 - 7 of 7
Name Product Available asset types Minimum deposit Cost
JP Morgan Personal Advisors
Finder Score: 3.3 / 5: ★★★★★
JP Morgan Personal Advisors
Mutual funds, ETFs
$25,000
Between 0.4%–0.6% of the assets in your account, paid monthly
Ongoing access to an advisory team with personalized, expert-built portfolios. Provider terms & conditions apply
Vanguard Personal Advisor
Finder Score: 3.8 / 5: ★★★★★
Vanguard Personal Advisor
Stocks, Mutual funds, ETFs, Treasury Bills
$50,000
Annual fee of $20 (avoidable)
Financial advice powered by relationships, not commissions.
Domain Money
Not rated yet
Domain Money
Investments, Retirement
$0
Empower
Finder Score: 4.1 / 5: ★★★★★
Empower
Stocks, ETFs
$100,000
Between 0.49%-0.89% of the assets in your account
Unlimited financial guidance plus optional professionally managed ETF portfolios.
WiserAdvisor
Not rated yet
WiserAdvisor
Stocks, ETFs, Investments, Retirement
$0
Varies
Compare top financial advisors matched to your specific needs.
Datalign
Not rated yet
Datalign
Savings, Investments, Retirement
$0
$0
Get matched with a pre-screened financial advisor at no cost.
Facet Financial Planning
Stocks
$0
From $2,400 to $8,000
Flat-fee financial guidance from a certified financial planner for between $$2,400 and $8,000 per year.
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