According to Fidelity, one of the largest 401k providers in the world with over 12 million accounts, the average 401k balance is now around $120,000 as of 2Q2021.
Among employees participating in a 401k for at least 10 years, the average balance hit $251,600, up 12% from a year ago. Separately, Vanguard reported that the average 401k balance has now shot up to $120,650. For workers 55 years of age or older, the average balance is $163,300.
In 13 not so short years, we've finally breached the peak average balance of $69,000 in 2007 and are now at record highs. It's not so hard to believe since the Dow Jones and S&P 500 are also at record highs. At the depths of the crisis in 2008, the average 401k balance plummeted 25% to around $50,000.
401k Participation Rate Is High
401k participation levels hover at a respectable 71% for those making $40,000-$60,000 a year. Participating levels are therefore clearly much higher for those making more, but the exact number is unclear. For those making $20,000 to $40,000 a year, the participation level drops to just 53%, which is understandable.
Let's say the average age surveyed is between 30-35, you can now see how absolutely pathetic these balances are if you are actually depending on your 401K to retire.
You need to have the mindset of always maxing out your 401k every single year while saving at least 20% of your income after full contribution. There really is no other guaranteed way to retire comfortably if you aren't saving a good amount. The power is all in your hands!
Saving Your 401k Is A Must For Retirement
It may seem daunting to save $19,500 (2021 max) pre-tax dollars a year if you're not making more than $60,000 a year. But trust me when I tell you it's a must. If you spread out your contributions evenly over 12 months, you will be contributing $$1,625 each month pre-tax.
Hence, what's really coming out of your paycheck is not $1,625 each month, it's more like $550 every two weeks or $1,100 every month thanks to not having to pay taxes. You can do it. Millions of people survive on much less.
I recommend not stopping at the company's 401k match, which often equals 3% of your base salary or $3,000, whichever is larger. I've heard many examples of a much higher contribution, all the way to a full 100% contribution match as well. Whatever the case may be, you need to do your best to max it out.
After 10 years, you'll have at least $195,000 given it is very rare that one loses money in a balanced equities and bond portfolio in any 10 year stretch. Furthermore, I haven't included any of the company matching or profit-sharing.
Doesn't at least $195,000 in your 401(k) sound good when you are 32 (assuming you graduated at 22), and $350,000 sound good at 42? The fact of the matter is, you're more likely to have $200,000+ and $500,000+ if you keep maxing out your 401k based on average 4% returns, company matching, and profit sharing.
By 50 an 60 years old when you retire, you are well on your way to a million dollar 401k balance or more. However, the sad thing is that $1,000,000 in today's dollars certainly buys much less than $1,000,000 dollars 10, 20, and 30 years in the future. Hence, your 401k cannot be depended on. It can only be considered a supplement during your retirement.
Recommended 401k Amounts By Age
Here's is my recommended 401(k) savings chart by age or work experience:
When The 401k Gets Big, It Starts Working For You
Once you have a sizable portfolio, your contributions will start making less of a difference. For example, a reasonable 4% return on a $500,000 portfolio is $20,000. If you made 20%, that's a nice $100,000 return while you kicked back doing little.
It's all about building your nut as large as possible so that your money just starts doing all the work for you. Some of you gunslingers might laugh at a 4% return, but when you have millions of dollars in the bank or in your portfolio yielding a risk free 4%, it adds up!
You become more risk adverse as you get older. It's partly because you might have more liabilities and dependents and don't want to blow yourself up. But, it's also because once you have a $500,000 portfolio, it will STILL make you sick to your stomach if you lose 10% of it. This is even though you are much wealthier than when you were first starting out Some say 10% is 10%, but trust me, when I saw my portfolios go down by $100,000+ during the downturn, it wasn't a pleasant feeling.
Here is the reality of how much people have in their 401ks today:
Manage Your 401k Portfolio Wisely
At some point in 2010, I noticed that finally, I had breached my 2007 highs. I haven't bothered to calculate my portfolio's real rate of return given that it is quite messy with the company match and profit sharing plan. All I really care about is how much is in the darn portfolio, and I'm pleased to say it is about 25% above its previous peak. Here's how often you should re-balance your 401k.
There's no magic involved in the portfolio at all. The most important thing is an asset allocation between equities, bonds, and cash which you are comfortable with, and that you keep on maxing it out! I like the idea of keeping roughly your age as a percentage in bonds, and the rest in equities.
Couple your 401(k) with your hefty after-tax investment account, you will be good to go when it comes time to no longer work.
Recommendation To Build Wealth
The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.
The best tool is their 401k Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also recently launched the best Retirement Planning Calculator around, using your real data to run thousands of algorithms to see what your probability is for retirement success.
Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner. There's no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?
About the Author:
Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.
In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income largely thanks to investments in real estate crowdfunding. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.
[…] 3) Large companies have more infrastructure to train you. One of the best things about starting off my career at a large institution was the training. I got to go to class to pass my Series 7 and 63 tests. I got to take courses in leadership, accounting, finance, and communication to develop my skills. My next employer paid for my MBA for three years at Berkeley. Meanwhile, I was able to get foreign language training in Mandarin for a year as well, all paid for by my employer. When you’re at a small company, all you’ll get is perhaps some free food and drinks to keep you in the office longer. Many smaller companies don’t even provide 401k matches or profit sharing. […]
There’s a good chance you’ll realize a compound annual growth rate of 8%. But there’s a much better chance you’ll get divorced, and you wife will take 50% of the balance:)
These days the husband would have rights to 50% of hers as the case may be. Or that was true of some people I’ve known.
401(k)s are the biggest scam to be foisted on the American public since snake oil. What the money managers won’t tell you: If you’re middle class, it is mathematically impossible to “save” enough to actually retire. Period. Unless your idea of “retirement” is moving into a homeless shelter and eating cat food. For a $50K/year worker to “retire” on half of his income (what he can barely afford to live on when he’s working), he’ll need TWO MILLION DOLLARS in his IRA. In other words, he has to work until his 150th birthday. But the money-grubbing “financial advisors” keep up the 401(k) fairy tale, scaring everyone into handing them 15% of their pathetic paychecks (and charging their hefty fees for the privilege).
25 yrs old, 4th yr of working. Stupidly had just been contributing 5% to my 401k to get the company match. Bumped that up to 10% last year. Hoping to bump that up to the $17500 mark this year, but it’ll be tight. Need to do it though, only way to ensure I have a decent retirement.
@ Matt
If you are saving 1k a month, then you will reach your 50K goal in 4 years, 2 months – assuming zero interest (which is accurate today). So your planning for 5-8 years is actually over-funding the down-payment fund. Instead, you could save about $850 a month, bump up your 401k contributions with the difference and you would still reach 50K within 5 years. (850 * 60 months = 51,000) Also, make sure you understand the vesting period on your employer match. Younger workers, who might be inclined to switch jobs, are shocked when significant portions of the match are held back because of vesting schedules.
I contribute to both a roth 401k and a traditional 401k. I contribute 6% to each and my employer matches 50% of both. When I look online my account has 1 balance. So it appears that my roth and regular 401k are combined into one acccount balance. How does this work with taxes when I go to take them out? Or are they kept seperate behind the scenes? Thanks!
They are kept separate behind the scenes. With my Fidelity account, I can see my balance broken out by “source”, it sometimes shows as just a code, but each code corresponds with a contribution type. If I remember correctly, my company’s plan has a total of 15 or so different source codes ranging, from roth contribution, company match, catch up contribution, roth roll over, etc.
I am 23 and have been working for just over 4 months. I currently contribute 10% and get an employer match of 7%, so 17% between the two. Currently I have 85% allocated in stocks and 15% in bonds, which i will probably keep it at till 30 barring any big market fluctuations. I would max out my 401k but am trying to put away 1k a month in savings hoping to build a 50k nest egg for a down payment on a home within 5-8 years. I’m trying to decide between investing my savings in riskier stocks that trade for under $5, or for bluechip stocks. Obviously more risk, more ‘potential’ reward, but was wondering if anyone has any input on to which I should choose. I am a gambler and young and have no debt of any kind, so I can take a little more risk than a lot.
SO my wife and I are 59 (her) and I’m 58. Collectively we have 1Mil in our work 401K’s (each over 500K). We have 280K in cash, 30K in US Savings Bonds, 150K in a Joint Tenant Act. My wife has a Roll over IRA with 40k, and and a Roth with 32K, I have a Roth with 32K. I’ll have a pension when I retire (plan is age 61 or 62). She has a Cash Value Pension worth 130K.
She doesn’t think we have enough for us to retire at 62. Thoughts?
How are your income producing assets? $1.4 million is a nice nut, but at a 3% annual return that’s $42,000 a year plus social security and whatever else. Is that enough?
Keep in mind this number ($72,000) is for the average 401(k) customer at Fidelity only. It fails to reflect the millions of Americans who have literally nothing in retirement savings. The Employee Benefit Research Institute claims there are only 50 million 401(k) accounts out there period. If we averaged them in we would probably see the number drop significantly. Pretty sad.
I’ve only got $40k (31 yrs.) in, time for some catch-up to Fidelity’s average.
Tim – Have you done the calculations on how you plan to survive in retirement if you plan to go at your pace? I think Fidelity’s numbers are TOO LOW. It is a large enough sample set to be statistically significant.
Read:
How Much Should One Have In Their 401K At Different Ages
How Much Savings Should I Have Accumulated By Age? posed on 12/4/12
You need to save more, unless you want to work FOREVER.
401k’s are failing people because of unstable markets. Look at the major crashes over the last decade or so. The Tech bubble, 2008 financial crash etc. I have saved for quite sometime and not borrowed off my 401k and have always contributed the maximum and I am slightly above the minimum for my age range. Thank God I have a pension to supplement it, although that was reduced by my company selling out about 13 years ago. They say people near retirement are woefully short in their 401k’s when they retire. They will lead a meager life in retirement, run out of money and live with their kids. I agree with the guy who says $1,000,000 in your 401k at retirement is really not that much.
“By 50 an 60 years old when you retire, you are well on your way to a million dollar 401(k) balance or more. However, the sad thing is that $1,000,000 in today’s dollars certainly buys much less than $1,000,000 dollars 10, 20, and 30 years in the future. Hence, your 401(k) cannot be depended on. It can only be considered a supplement during your retirement.”
Your calculations are wrong, your contributions would inflate over time too, by age 50 an 60 years old your 401K would be about 2.5 Mill
401k is not as good as advertised. Big sacrifice while fund managers earn large fees from your savings and sacrifices. Start with what you truly need for retirement. Stop listening to the Social Security scare. Savings, CD, US treasuries. Enjoy life while you can. Rather spend now then at 75 to 80. Again do the math.
Sounds like you are making excuses for why you aren’t saving.
Maybe this article will help and inspire you.
So, I have one question. How does fidelity know what a person’s total 401(k) balance is? I’ve worked for 14 years now after college and have a 401(k) with my old employer and another with my current employer.
If my second one were with Fidelity, would they report me as only having 50k balance when my total is in excess of $130k?
With a sample set in the millions? I’m happy to believe in ther 70k Estimate.
I’m 25 and just started my 401k last summer. I’m currently making $46,000 salary and contributing 15%. My company matches $0.50 on the dollar up to 10%, offers a pension plan (ive got a while but its a nice thing to supplement the 401k), and I currently have $4,000 in my 401k. I cannot afford to contribute any more than 15% at the moment. Should I start contributing the max as soon as I can reasonably afford it and continue to manage my account myself or should I select a model and let it take care of itself?
Are you talking about retirement target dated funds? If so, not a bad idea.
Please read this suggested savings rate if not yet:
Depends what model you are discussing. One of those retirement target date funds that asset allocates for you? Not a bad idea.
If you haven’t read this post, I recommend following the suggested savings rate:
I’m up but not by enough. In 2009, instead of taking my money out (wish I had done that in 2007), I increased my contribution percentage amount. It made me nervous, but I did it anyway, so I’m doing quite well right now :)
I still need to rebalance into a more acceptable risk model though.
Unless you’re Nostradamus. Buy and hold works.
In other words, the average is too high or too low in your opinion?
For those looking for confirmation bias please skip this post.
Good article and the replies are encouraging in that people are taking responsibility for their own financial future. In our case we chose a different path of stepping away from our 401K when changing jobs for a couple of reasons: no employer match and extremely small list of choices. I realized that most of the advice I had heard from financial planners over the years was lacking and one sided and decided it was time to educate myself and take control of my financial future.
6 years ago took the penalty on my 401K when leaving my job and taking on the job mentioned above with no match and lousy options. Took that money and our investing $s since that time and did my own research and investing….wow! I’m not the sharpest marble on the planet but we’ve been averaging about 35% per year since that time with my worse year being about 20%. Spoke with bright financial planners 6 years ago (remember things were cranking along and most were making money) and they disagreed with what I was planning to take on and now one is out of the business and another struggling to keep his family afloat. They’re great people but were brainwashed that there was only one way to do things. Find your investing style and take a portion of your investment and go for it. In my case I hate day trading and look for medium to longer term (2-10+ years) short or long opportunities and things have been good. Studied the cyclical nature of markets and things like the performance of the markets when a dem/rep president is elected, etc.
There’s more than one way to do things and I wish us all continued success in whatever path we chose.
All the best,
Joe
Hi, I am 54, max out on 401k, started late, but have over $500k now, mixture of Roth and standard, $200k+ in stock options at current value, I am considering exercising the stock and paying off house, though I only have a 3.75% loan, or at least doing it when the tax incentive for the debt goes away in next cople of years. I have 2 questions, one requires the crystal ball and the ouijie board:
Do you think tax rates may actually be flatter and lower in 10 years? Therefore, it makes sense to get rid of real estate debt, etc
Does anyone know if the social secuiy statements you get telling you how much money you will get is the value at age of retirement OR is the predicted value today, but could be higher due to inflation and COLA adjustments? I can never understand this from the document, thanks
With a rate of 3.75%, I’d keep it until you actually retire and keep maxing out the 401K. 3.75% is nothing.
I’m not sure about #2. I think it’s what you’d actually get if you were that retirement age an quit today.
YOU MAKE A DUMB STATEMENT: All I really care about is how much is in the darn portfolio, and I’m pleased to say it is about 25% above its previous peak. Oh so let’s say you contribute $20,000 each year for 5 years and your net loss on your investments is $75,000. You don’t care because your balance is $25,000 higher. And, how can you be 25% above the previous peak, unless you made a 25% gain in one day. In reality, you made many new peaks on your way to your latest new high. Of course, you probably have lost 5% to 15% in the last two weeks.
Exactly. Because my portfolio dwarfs the size of what I can contribute a year ($16,500), performance has been the reason why I’m 25% above the previous peak. When your portfolio gets to be over $500,000 for example, $16,500 is only 3.3%. I certainly have lost some this week, but only 1.3% as I’m 75% cash/fixed income after my portfolio was up 11% at the end of May. I sold equities and am still up 8.5% for the year. https://yakezie.com/15546/personal-finance/sell-in-may-and-go-away-stock-portfolio-rebalancing-time/
How big is your portfolio and how are you doing genius?
I am 55 and can retire at anytime with a pension of $3500 per month. My 401k balance is $600,000 of which over $400,000 is my self managed portion. I have $250k in Company stock that produces dividend income. My wife’s 401k balance is $300K and another $100K in municipal bonds.
She gets a pension at 62 of $2200 per month.
We always lived off one salary and saved the other. Took charge of our investments instead of letting someone else. Live below your means.
I’m 37 single with no children. With a company match I contribute 17% to the 401k yearly. Currently I total $265,000.00 I will have my home paid for in 2.5 years and have no other debt. I have approx. $24,000 in savings. Can you recommend I do anything different as I would like to retire as early as possible, get out of the rat race and have a little fun in life. My investor tells me if you average a 7-8% yearly return you should triple your investment every 20 years. If this holds true I should be in be in a good spot to retire by the time I’m 57. Your thoughts??
I would make sure you contribute max $16,500 and check on the company match and profit sharing if possible.
The $24,000 in savings at 37 is honestly very light. I’d think you’d need to jack that up by at least 5X to be on track, and hopefully 20X by the time you turn 57.
Don’t expect 7-8% yearly return at all. Save more and get a second job if you can!
Huh? He has $265K in retirement savings, not $24k. 24k sounds like his emergency fund. And there is no way you can tell him how much he should have without knowing what his lifestyle is. I make $100k but truely live off$45k.
“Professionals” tell me that I should base my retirement income on what I make now and I say “BS”. I am making what I make now because I work my butt off. In ten years I want to slow down. I am living off of less now so I don’t have to maintain this pace forever.
I have a question for you: My wife wants to work for just a couple more years (same age as I am.) Her 401K is approaching 100k. I took a part time job until she stops. We have a nice bank account, but I like to keep that pushed in the corner “just in case.” We have about 50K left on the house and property,,,,no other bills. We were talking about cashing her 401K in at 59 and pay the house off, and use the rest as a supplement for 2years until we start drawing on my 401K at 60.
What’s your draw on that? I know typically one wouldn’t literally cash a 401 in,,,but it would be nice to finish the mortgage about the same time we both stop working.
BTW,,,I’m the same Al as the previous post.
Sounds like a good plan to me. Def wait until 59.5 to cash out the 401K for no 10% penalty and go ahead and pay off that mortgage. That’s the ideal scenario in a retirement environment, being debt free since you have your own cash and 401K still there. I think you’ll be happier with no mortgage. Cheers
Retired at 53 with a pension. saved 13 percent during my 24 year LEO career. I haven’t put any money in the 401K (TSP) for 3 years since my retirement, but the 400K is now making it’s own money and if I were to put money in now,,,it would be insignificant. I don’t plan on touching it til I’m at least 60 so still have 4 years of some good growth opportunities and I don’t exactly need it right now (can’t believe I would ever be able to say that.)
It helped, also, to have moved my higher yielding mutual funds to a safe fund JUST before (I mean 2 weeks) the economy dumped in 08. Just had a bad feeling the way the economy was turning. I have made my retirement plans without counting on SS at 62,,,so will be a big plus when I do.
I know I have been lucky in my mutual fund selections and I have seen my friends take a serious nose dive in 08. I did, however, try to enlighten them beforehand. Guess my best advise, and I’m far from an expert, is to do some good research on the different investment opportunities within your plan and spend a little time each week and watch what is happening in the economy.
Good luck to you all.
It must be nice to have a pension! Unfortunately for the rest of us, it’s probably not going to happen. Can you share your pension amount?
Pension amount is 33,000/year. And yes,,,I do realize that pensions are a thing of the past,,,and I do count my blessings for the luck of having it. Started drawing it when I retired at 53. I was federal law enforcement. I’ve been saying for the last 10 years they were going to end the pensions,,,,have recently heard they trying to push the legislation thru to end it. In reality,,,it just can’t be supported, even tho I made small contributions to it.
I maxed them all out while employed. Definitely a good decision after seeing what compounding has done over the years…not to mention postponing taxes until later
I’m 33 and have a retirement balance of approximately $175K (mix of pre and post tax). I max out my 401k and IRA contributions each year and get 4% of my 401k contributions matched by my company.
I feel pretty good but I know I have a long way to go. I’m not counting on Social Security at all b/c it’s so screwed up. If I get it, it will be a bonus.
Nice work! Have you been maxing out every year since you graduated? What about company match and stuff?