This Is the Average 401(k) Balance — How Does Yours Compare?

Some people figure they’ll manage just fine in retirement on Social Security alone. Those same people often get a rude awakening.

The reality is that Social Security will only replace about 40% of your pre-retirement income if you’re an average wage earner, but most seniors need about twice that much money to live comfortably. And that 40% figure doesn’t account for Social Security cuts, which are, at this point, very much on the table.

That’s why it’s so important to build savings ahead of retirement. And if you have the option to participate in a 401(k) plan, you may want to jump on it.

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The great thing about 401(k)s is that they offer much higher annual contribution limits than IRAs. Plus, many companies that sponsor 401(k)s also offer matching incentives, which means free money for your account that can lead to more retirement wealth.

But signing up for a 401(k) won’t do the trick in helping you attain financial security in retirement. Rather, you’ll need to fund that plan consistently. And if you’ve been doing so for many years, you may be curious as to how your savings balance compares to that of the average American.

To that end, Vanguard has an answer. And it might inspire you to ramp up your savings or pat yourself on the back for a job well done.

How does your 401(k) balance stack up?

In 2021, the average 401(k) balance for Vanguard plan participants was $141,542, according to Vanguard’s 2022 How America Saves report. The median balance, however, was much lower at just $35,345.

Whenever you have a median that’s well below an average, it means more people have less than the average than more. In this case, that $35,345 may be more indicative of how much Americans have saved in their 401(k)s than the $141,542 average.

Should you be happy with your retirement-savings balance?

Let’s imagine your 401(k) balance is comparable to that of the average American. If you’re in your 20s, you’re in fabulous shape. But if you’re in your 50s, not so much.

The reality is that looking at a broad average in the context of 401(k)s isn’t necessarily going to help you all that much, other than perhaps satisfy a point of curiosity. Instead of fixating on what the average American has saved, think about your personal savings balance and whether it’s on track to help you meet your goals.

As a general rule, it’s a good idea to close out your career with about 10 to 12 times your ending salary saved up. So if you’re in your 40s earning $100,000 a year, you may want to aim for a $1.2 million nest egg (or higher, since your salary could conceivably grow a lot between now and when you wrap up your career). If, at this point, you have less money socked away than what the average American has, you may want to push yourself to save more — not because your balance lags, compared to the average, but because it lags compared to where you need to be.

Remember, everyone’s retirement needs are different, and the pace at which different people save can differ, as well. So it’s important to focus on your own needs and objectives.

It’s also definitely worth noting that in 2021, 401(k) balances grew by 10%, compared to 2020. But that doesn’t necessarily mean workers started socking away a lot more money.

Rather, that substantial growth most likely came as a result of stock market gains. This year, as many of us are painfully aware, stocks are down significantly, so 401(k) balances may, at this point, be down from where they were last year. Therefore, a good bet for you may be to focus on your savings rate, rather than your actual balance.

Retirement-plan balances can fluctuate based on market performance. But if you want to retire with plenty of money, do your part to keep ramping up your contributions, especially as your earnings increase.

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