What's the Average 401(k) Balance by Age?
With all the current events I started looking at my finances a little closer. I’ve seen statistics that say the average American doesn’t have $1000 in their bank account which is scary. I can only imagine the retirement savings numbers for the average American is pretty dismal.
I wanna emphasize how important it is to try to become financially independent that way if we have more events like our current situation you do not have to rely on government assistance or stress as much about your future.
There are many ways to become financially independent: frugal saving, stocks, property, passive income and crypto! This list goes on, but this post is not about becoming financially independent. It’s about seeing what the average person has in retirement.
It can be hard to determine exactly how much you'll need for your own post-career days, but finding out how others are planning or not can offer a benchmark for setting goals and milestones. That’s the goal for today’s post a benchmark for myself and others in this community.
401(k) Plan Balances by Generation After reading a few articles I found the high level assessment by Fidelity
The average 401(k) plan balance reached $112,300 in the fourth quarter of 2019.1 That's a 7% increase from $95,600 in Q4 2019.2 It's worth noting that the Q1 2020 amounts will likely be different based on the economic volatility caused by the global pandemic.
Personally, I think this number is way too low. HoweveR, when compared to other savings numbers I’m not surprised. Typically, I’ve read the retirement income should be 80% of your final salary. So if you make 100K/year you should expect to need to draw 80k/year in retirement.
Obviously, if you look at that average retirement savings the math just doesn’t work out…
So how does that break down by age? Maybe breaking it down a bit will get some encouraging statistics. Here's how Fidelity crunches the numbers:
Twentysomethings (Age 20–29) Average 401(k) balance: $10,500 Contribution rate (% of income): 7%
Thirtysomethings (Age 30–39) Average 401(k) balance: $38,400 Contribution rate (% of income): 8% Among millennials (which Fidelity defines as those born between 1981–1997), IRA contributions increased by 21% compared to Q4 2018.4 This generation contributed approximately $373 million to IRAs, 46% more than in the previous fourth-quarter. Roth IRAs accounted for 73% of millennial contributions.2
Fortysomethings (Age 40–49) Average 401(k) balance: $93,400 Contribution rate (% of income): 8% The jump in the account balance size for Gen Xers could reflect the fact that these folks have logged a good couple of decades in the workforce, and have been contributing to plans that long. The slightly larger contribution rate may reflect the fact that many are in their peak earning years.
Fiftysomethings (Age 50–59) Average 401(k) balance: $160,000 Contribution rate (% of income): 10% The jump in the contribution rate for this group suggests that many are taking advantage of the catch-up provision for 401(k)s, which allows people age 50 and over to deposit more (an extra $6,000 in 2019 and $6,500 in 2020) than the standard amount.5
Sixtysomethings (Age 60–69) Average 401(k) balance: $182,100 Contribution rate (% of income): 11% Savings-wise, it's now or never for this group. The fact that the contribution rate is as high as it is suggests that many baby boomers are continuing to work during this decade of their lives.
Seventysomethings (Age 70–79) Average 401(k) balance: $171,400 Contribution rate (% of income): 12%
Overall, the average balance is concerning however there does seem to be an increase savings rate in younger people. I believe that as a millennial the cost of education, stagnant wages and the price of living is making it hard to achieve what pass generations have been able to do. This is created lower balances, but it is creating a mentality that when we do get some sort of income we’re saving at a higher rate which is about the only positive I can take away from this.
I’m interested to see what others think about the statistics. I’d also be interested to see how people feel about their situation compared to the averages.
I know financial independence has been on my mind since I was 16. I live frugally, invest and have a pretty average job. With these I’ve been able to save, but personally I’m falling behind the goals I’ve set for myself.
