Retirement is incredibly expensive, and it’s more important than ever to have a healthy nest egg heading into your senior years.
The average U.S. adult predicts that a comfortable retirement will cost roughly $1.8 million, a 2023 survey from Charles Schwab found. Healthcare alone costs the average 65-year-old couple around $315,000 in total out-of-pocket expenses, according to a 2023 report from Fidelity Investments, and these figures may only increase going forward.
Coupled with the fact that most employers no longer offer pensions and Social Security is struggling financially, many workers will have to rely primarily on personal savings in retirement.
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Everyone’s situation is different, and the amount you need to retire will depend on factors like the cost of living in your area, the type of lifestyle you expect to enjoy in retirement, and expenses out of your control (such as healthcare). But it can still be helpful to see where you stand among your peers.
This is exactly how much the average U.S. adult has stashed in their 401(k), as well as a few tips to beat that average.
How do you compare to the average worker?
Each year, Vanguard releases its How America Saves report to highlight where Americans stand in their journey to retirement, and that includes a snapshot of Vanguard 401(k) holders’ account balances at various ages.
Across all age groups, the average 401(k) balance is $112,572. This number may be skewed by extremely high-earning outliers, however. The median may be a better figure to gauge where most Americans stand, and this number is $27,376 across all age groups.
When broken down by age bracket, there is a wide disparity across ages:
| Age | Average 401(k) Balance | Median 401(k) balance |
|---|---|---|
| Under 25 years old | $5,236 | $1,948 |
| 25 to 34 | $30,017 | $11,357 |
| 35 to 44 | $76,354 | $28,318 |
| 45 to 54 | $142,069 | $48,301 |
| 55 to 65 | $207,874 | $71,168 |
| 65 and older | $232,710 | $70,620 |
Source: Vanguard. Table by author.
If your 401(k) balance falls below the average or median, that’s OK. It’s simpler than you might think to accumulate hundreds of thousands of dollars for retirement, and there are a few proven strategies to help boost your savings.
1. Take advantage of the employer match
Many 401(k) plans offer matching contributions, where the employer will match a worker’s savings — usually up to a certain percentage of the employee’s salary. This can amount to thousands of dollars per year in free money, so if your plan offers this perk, it’s wise to take full advantage of it.
According to Vanguard’s report, the most common type of employer match is $0.50 per dollar up to 6% of a worker’s salary. So, for example, if you’re earning $50,000 per year, your employer would match up to $1,500 of your contributions annually.
That may not sound like much, but if you were earning a modest 8% average annual return on your investments, that $1,500 per year could amount to around $110,000 after 25 years. Once you factor in your own contributions, too, you’d have at least double that amount.
2. Double-check that you’re investing aggressively enough
Proper asset allocation — or investing aggressively enough for your age — can help protect your savings while still maximizing your earnings over time.
Most investors’ portfolios contain a mix of stocks and bonds. While stocks are generally riskier than bonds, they also tend to experience much higher returns over time. Bonds may seem safer because they carry less risk, but it can be incredibly difficult to build a retirement fund worth hundreds of thousands of dollars with more conservative investments.
When you’re younger and still have decades before retirement, it’s wise to invest more heavily in stocks. Even if the market takes a turn and your investments are hit hard, you have plenty of time for them to recover before you need that money. Then as you get closer to retirement, your investments should gradually lean more conservative.
While there’s no hard-and-fast rule for the ideal asset allocation, one general rule of thumb is to subtract your age from 110. The result, then, is the percentage of your portfolio to allocate to stocks. So, for example, if you’re 45 years old, you may choose to allocate 65% of your portfolio to stocks and 35% to bonds.
3. Stay focused on the long term
It can take decades to accumulate hundreds of thousands of dollars in your 401(k), but thanks to compound earnings, your money will grow faster the longer it sits in your account.
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Although it’s often easier said than done, try to avoid getting discouraged if your savings are slow to grow at first. Consistency pays off over time, so do your best to continue saving regularly — even when it feels like you’re not making much progress.
Saving for retirement isn’t easy, but the right steps can help you beat the average 401(k) balance. With time and patience, you can ensure you’re as prepared as possible for retirement.
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