Average 401(k) Balances by Age (2024 Data from Empower)

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“Comparison is the thief of joy.” - Theodore Roosevelt

We often hear that comparing ourselves to others can lead to negative feelings, but when it comes to retirement savings, a bit of comparison can be beneficial. Today, we're looking at how your 401(k) balance measures up against the average for your age group. This comparison can lead to two positive outcomes:

1. Confidence Boost: If you're doing better than average, it's a sign to keep up the good work.
2. Motivation to Save More: If you're behind, it’s a wake-up call to take action and catch up.
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Why Compare Your 401(k) Balance?

Comparing your 401(k) balance to others can help you understand where you stand and what steps you need to take. It’s important to remember that 401(k) plans fit into everyone's financial plan differently. For example, someone in rural America might need less than someone planning to retire in New York City.

Today, we’ll use data from Empower, one of the largest 401(k) providers, to compare average and median 401(k) balances across different age groups.

Understanding Averages and Medians

• Average: Sum of all balances divided by the number of participants.
• Median: The middle balance when all are lined up from smallest to largest.
  
  

The median is often a better indicator because it isn't skewed by very high or very low balances, as we can see in this sample data set:

To reinforce the power of compounding interest, with each age group we will take the median balance and project what you could have saved by full retirement age (67) with the following assumptions:

1. You fall into the middle of the age group (i.e. 25, 35, 45)
2. You earn $75,000 per year
3. You contribute 10% or $7,500 annually to your 401(k)
4. You earn an 8% annual rate of return*
   
   

*This is of course a hypothetical rate of return and not guaranteed, but this is approximately the long-term average annual return of the stock market.

401(k) Balances by Age Group

In Your 20s

• Average Balance: $80,275
• Median Balance:$31,722
  
  

Key Points for Your 20s:

• Start Early: Compounding interest works best when you have time on your side.
• Maximize Company Match: Contribute at least enough to get the full employer match.
• Focus on Debt and Savings: Pay down high-interest debt and build an emergency fund to avoid dipping into your 401(k).
  
  

Potential Growth: Contributing $7,500 annually at an 8% return could grow to $3.7 million by age 67.

In Your 30s

• Average Balance: $173,793
• Median Balance: $74,581
  
  

Key Points for Your 30s:

• Stay Consistent: Despite life changes like kids, home purchases, or starting a business, maintain your 401(k) contributions.
• Avoid Temptation: Don’t stop contributions with the intention of restarting later.
  
  

Potential Growth: Starting at age 35 with the median balance and contributing $7,500 annually, you could have approximately $2.1 million by retirement.

In Your 40s

• Average Balance: $366,054
• Median Balance: $159,072
  
  

Key Points for Your 40s:

• Avoid Lifestyle Creep: As income increases, resist the urge to spend more on luxuries.
• Increase Contributions: Aim to max out your 401(k) and increase contribution percentages.
  
  

Potential Growth: With the median balance at age 45, you could have $1.3 million by retirement.

In Your 50s

• Average Balance: $583,231
• Median Balance: $255,036
  
  

Key Points for Your 50s:

• Catch-Up Contributions: Take advantage of the extra $7,500 per year allowed.
• Ensure Readiness: Max out contributions and ensure you’re on track for retirement.
  
  

Potential Growth: Starting at age 55 with the median balance, you could have $867,000 by age 67.

In Your 60s, 70s, and 80s

Since most people retire in their 60s, this is when they shift from the accumulation stage to preservation and distribution (i.e. income for retirement). As you can see, the numbers start to decrease as a result.

Key Points for Your 60s, 70s, and 80s:

Have a thought-out withdrawal plan in place as part of your broader retirement plan. A rule of thumb is to withdraw around 4% of your portfolio balance at retirement and adjust it for inflation, to reduce the risk of running out of money. The 4% rule has its flaws, but it’s an easy way to determine how much income you can sustainably withdraw without a big risk of outliving your nest egg.

Key Takeaways

While comparing your 401(k) balance can be useful, remember that the data from Empower only includes 401(k) plans managed by them and doesn’t account for other retirement assets like IRAs or plans with other providers.

Tips for Those Who Feel Behind

1. Start Early and Stay Consistent: Time and compounding interest are your best allies.
2. Maximize the Company Match: Never leave free money on the table.
3. Automate Increases: Set your contributions to increase automatically over time.
4. Review Investments Regularly: Ensure your investment mix aligns with your time horizon and risk tolerance.
   
   

Final Thoughts

Comparing your 401(k) balance to others can either boost your confidence or motivate you to save more. Regardless of where you stand, the important thing is to take action and stay committed to your retirement goals.

Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Please consult with a certified financial planner for personalized advice.

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