When you are young, retirement planning is something that you can easily put off to worry about later. After all, everything sorts itself out in the end. But, if it doesn’t, what’s your plan?
If you don’t have a plan, you will put yourself and your family in a less than ideal situation. If you have envisioned your dream retirement, you need to carefully plan your finances to realize those dreams.
A 401(k) plan is a common investment vehicle that Americans use to save for retirement. It is an employer-sponsored plan that allows you to make tax-sheltered contributions ($22,500 / $30,000 per year in 2023) to help maximize your retirement fund value.
According to a study sponsored by Personal Capital and conducted by ORC International, almost 37% of pre-retirees have no money saved for retirement. Nearly 63% of Americans participate in an employer-sponsored retirement plan, and just 21% of them max it out.
Let’s find out the 401(k) savings potential by age and what should be your retirement goals.
Average 401(k) Balance By Age
The below numbers show how the 401(k) average and median balance increase with age until the participant starts withdrawing money from it in retirement. These numbers may seem high to some people, especially if you are older and had started your retirement savings when the contribution limit was much lower. But, these numbers can be used as a guide for creating your retirement goals at every age.
| Age | Average Account Balance | Median Account Balance |
|---|---|---|
| Under 25 | $5,236 | $1,948 |
| 25-34 | $30,017 | $11,037 |
| 35-44 | $76,354 | $28,318 |
| 45-54 | $142,069 | $48,301 |
| 55-64 | $207,847 | $71,168 |
| 65+ | $232,710 | $70,620 |
Group 1: Ages Under 25
| Average 401(k) balance | Contribution rate (% of income) | Median 401(k) balance |
| $5,236 | 8.1% | $1,948 |
The participants in this age group are new to working and also new to retirement savings. At this young age, it is important to prioritize contributing to your workplace, especially if your employer matches a portion of your contributions.
Retirement Savings Goal: By the time you are age 24, you should have less than that amount saved and half have more.
Group 2: Ages 25-34
| Average 401(k) balance | Contribution rate (% of income) | Median 401(k) balance |
| $30,017 | 10.7% | $11,037 |
At this point, the participant’s balances increase roughly fourfold. People of this age group spend more time in the workforce and are more likely to change jobs without rolling over or combining their retirement accounts. Therefore, they tend to hold more than one 401(k).
Retirement Savings Goal: By the time you are 34, you should have three times your annual salary banked into your 401(k) account.
Group 3: Ages 35-44
| Average 401(k) balance | Contribution rate (% of income) | Median 401(k) balance |
| $76,354 | 11.1% | $28,318 |
In this age group, both the average balance and the median balance take a huge leap to become more than double. The reason could be that this age group is at its peak earning years. According to compensation research company Payscale, women tend to peak at age 39 and men at age 48.
Retirement Savings Goal: By age 44, you should have a 401(k) balance of at least six times your annual salary.
Group 4: Ages 45-54
| Average 401(k) balance | Contribution rate (% of income) | Median 401(k) balance |
| $142,069 | 11.7% | $48,301 |
This age group is allowed to make catch-up contributions. Participants age 54 and older can contribute an extra $7,500 a year in 2023. This is helpful for those who have been falling behind in saving for retirement.
Retirement Savings Goal: By the time you reach age 54, your 401(k) balance should be eight times your salary.
Group 5: Ages 55-64
| Average 401(k) balance | Contribution rate (% of income) | Median 401(k) balance |
| $207,874 | 12.9% | $71,168 |
This age group shows slow growth. This could be because the latter half of this group is already withdrawing from their 401(k). As people begin to tap into their accounts, the 401(k) balances begin to fall.
At age 59½, the IRS allows 401(k) distributions, although many people do not retire at that age.
According to Gallup, the average retirement age for Americans reported is 61 years, and the Social Security full retirement age for people is 67 years.
Retirement Savings Goal: By age 67, the account balance should be 10 times your annual salary. For example, if you are 67 years old earning $70,000 per year, you should have $700,000 saved in your retirement account.
Group 6: Ages 65+
| Average 401(k) balance | Contribution rate (% of income) | Median 401(k) balance |
| $232,710 | 12.7% | $70,620 |
As of January 2020, the Further Consolidated Appropriations Act lifted the age limit that prevented participants 70½ or older from making contributions to traditional IRAs. This is an additional retirement saving option for those who are currently working or running their own business.
Note: There’s also the tried-and-true, 80% rule: This rule is to save as much as 80% of your pre-retirement salary. So, if you are earning $75,000 annually, and if you want to keep the same standard of living in retirement, you would need roughly $60,000 a year.
Bottom Line
The average 401(k) balances by age mentioned above is a fairly arbitrary benchmark. It can help you analyze your own situation. But, it’s also limited to people who have a 401(k) and many workers don’t.
It is worth mentioning that you should not put all your retirement funds into a 401(k) basket. Spread your retirement money into other retirement accounts such as an IRA after you have earned your employer match in your 401(k).
Do you have enough in your 401(k) to retire when you want? Need a more personalized recommendation for how much you should save, and how much you’ll need in retirement? Talk to an expert at Self Directed Retirment Plans LLC as soon as possible.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning company based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning, and over the last ten years has turned his focus to self-directed ira accounts and alternative investments. If you need help and guidance with traditional or alternative investments, call him today (866) 639-0066.
