Are You Ahead or Behind the Average 401(k) Balance for 40-Year-Olds?

If you want a secure retirement, you must save for it. Social Security replaces only around 40% of preretirement income, which would likely leave you with too little money to live comfortably as a senior.

It can sometimes be hard to know if you’re investing enough throughout your career. The best way to determine that is to estimate your future spending needs and income from other sources, and to ensure that your savings will cover the gap. However, you can also see where you stand relative to others in your age group to get an idea of how your investments stack up.

If you’re curious about how your own investment balance compares to your peers’, check out the average 401(k) balance for 40-year-olds.

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Here’s how much the average 40-year-old has invested in a 401(k)

According to Empower, the average 401(k) balance for someone in their 40s is $425,052, while the median balance is $160,710. Obviously, there’s a troubling gap between the average and median balances. The reality is that some people are saving a lot and others are saving very little, and high balances drive up the average.

The median is a more realistic representation of what the typical person in their 40s may have invested. This amount isn’t nothing, so that’s good. However, by age 40, you’d ideally have around 3 times your annual salary invested in retirement plans. If your 401(k) balance is around the $160,710 median, then you may be a bit behind if your income is higher than $53,570.

Of course, your investment balance may be above or below this amount, or you may have money in other accounts in addition to a 401(k), such as a traditional IRA or a Roth IRA. The important thing is that you know what your own balance is and whether you are on track to hit the goals you’ve set in retirement planning.

And if you don’t yet know how much you ultimately want invested, now is the time to figure it out, as retirement will be here much sooner than you think when you’re in your 40s. You don’t want to get to 67 and be ready to claim Social Security only to discover that you don’t have nearly enough to live on.

How can you increase your 401(k) contributions?

Whether your investments are more or less than the median, you may decide you need to invest more if you don’t believe you’ll ultimately end up with enough to supplement your Social Security benefits.

For many people, there are two great techniques for that. You should automate your investing, which means making sure contributions are made automatically. This is generally standard with a 401(k) when you sign up to have funds withdrawn from your paycheck. And you should also bank your raises until you hit your savings target.

This means that if you get a 2% raise, you’ll ideally divert that entire 2% to savings before you get used to spending the money. Since you aren’t counting on it yet, it can help you increase your investments without changing your lifestyle.

These two techniques can hopefully help you beat the average and build the retirement security you deserve.

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