Vanguard, the 401(k) plan administrator, recently published average and median 401(k) balances by income in its How America Saves 2022 report. The data comes from 1,700 qualified Vanguard retirement plans encompassing nearly 5 million participant accounts.
You can use those balances as benchmarks to assess your own retirement savings efforts relative to others in your income bracket. Take a look at the numbers in the table below. And read on for the essential steps to reach — and then surpass — those average account balances.
Average Account Balance
Median Account Balance
Less than $15,000
$15,000 to $29,999
$30,000 to $49,999
$50,000 to $74,999
$75,000 to $99,999
$100,000 to $149,999
$150,000 and above
Two takeaways stand out from these numbers. First, higher-income savers have bigger retirement funds. That makes sense since they have more cash to contribute. Many have also been working and saving longer than lower-income participants.
Second, the average account balances are much higher than the median balances, a point that requires a tad more explanation.
Average balances skew higher
In case it’s been a minute since you worked with averages and medians, here’s a recap. You calculate an average by adding up the account balances and dividing by the number of accounts.
The median, on the other hand, is the middle value. Imagine listing all the account balances from smallest to largest. The median is at the midpoint: Half the account balances are higher than the median and half are lower.
If the account balances were evenly distributed, the average and median should be similar. In this case, they’re not. This is because there’s a small number of large account balances that skew the average higher. Even though half of participants who make less than $15,000 annually have a retirement balance of $3,341 or less, some have saved more — a lot more.
Think of it this way: The median is more telling of what most people have saved. And the average hints at what’s possible for the disciplined retirement saver.
Beating the average retirement-savings balance
No matter how your savings compare to the average and median balances, there’s always room for improvement. If you’re behind, start by catching up to the average. If you’re on track, work to become the saver who skews the average higher.
The tactics required to reach those goals aren’t complicated. Here are the basics in five steps:
Raise your contributions now and every year, without fail. Even a small annual increase to your contribution rate can make a huge difference over time. Keep raising your contributions until you hit the annual IRS cap.
Invest according to your age. Invest mostly in equities in your younger years. As you get older, gradually increase your exposure to fixed-income instruments. The rule of 110 can guide you here: Subtract your age from 110, and the answer is your target percentage exposure to equities. So, at 40, your investment split would be 70% equity funds and 30% fixed-income funds. This gives you growth when you’re young and greater protection as you age.
Get your full employer 401(k) match. Do what’s necessary to get your full employer match, even if that means clipping coupons or riding a bike to work so you can raise your contributions. If your employer matches $1 for every $1 you contribute, you’re doubling your money straight away. Don’t miss out on that.
Keep investing. Continue contributing every month, even if the market is going through a rough patch. Your money buys more when share prices are down.
Stay invested. Moving in and out of the stock market lowers your returns. Stay invested, even when your portfolio balance dips. Have faith the market will recover and return to growth. It always has before.
Pushing past income limitations
Your income limits how much you can save for retirement, but there are ways to push past those limits. In the short term, redo your budget to increase your contributions. You should also max out your employer match, invest according to your age, and stay committed to your investing plan. Longer term, work to secure a bigger paycheck.
Your efforts will be rewarded. In time, you’ll likely out-save your peers. But even better, you’ll build your wealth momentum and secure the comfortable retirement you deserve.
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