The Surprising Average 401k Plan Balance By Age

average 401k plan balanceI’m a competitive person. I like to challenge myself to be the best I can be. And in many regards, I compare my progress with others. A few years ago, I compared myself to others in terms of how much I had saved for retirement.

While it is natural to want to a benchmark for how much I should have saved for retirement by age, I realized there are a handful of problems going this route.

Today I will talk about what the average 401k plan balance is and look at how you compare with others in terms of balance by age.

The Average 401k Plan Balance

According to Vanguard, who published its How America Saves report, the average 401k plan balance was $96,495 in 2016.

While this report is only made up of 401k plan accounts that are held at Vanguard, the company has roughly $1 trillion in defined contribution plan assets which cover virtually all industries. So while it isn’t exact, it is a very good representation.

When we break down the numbers further we can see how much the average 401k balance is by income and age range.

average 401k balance by income

average 401k balance by age

However, there is a major issue with these numbers and it is the fact that we’re using the average balance. When we look at the median 401k plan balance, it was $24,713.
Here is the same breakdown of income and age range from above, now with the median values included.

median 401k balance by income

median 401k balance by age

To understand the drastic difference between the two, I need to give a brief refresher on average and median.

Average

When you compute the average of a set of numbers, you add them up and divide by the total amount of numbers used.

Let’s say you have $25,000, a friend has $10,000, and I have $5,000,000. What is the average amount we have? It’s $1,678,333 (25,000 + 10,000 + 5,000,000 = 5,035,000 and then 5,035,000/3).

As a result, the average can be misleading. In the Vanguard report, there could be a handful of 401k plan accounts that have a very large balance while the rest have small balances. These high balance plans can pull the average higher.

Median

The median looks at all of the numbers in a set and picks a number that has 50% of the numbers above it and 50% below it.

Using our example above of $25,000, $10,000, and $5,000,000, the median is $25,000. Here, 50% of the numbers are above, and 50% are below.

The median allows for a more accurate representation of the numbers as opposed to using the average because it isn’t influenced by a handful of large account balances.

Unfortunately, the median amount isn’t 100% accurate either. This is because there are many factors that can cause the median to be skewed.

For example, using the data above, we see that for those aged 45-54, the median 401k plan balance is just over $43,000. But what if a person in this age group changed jobs a few times and thus has 3 401k plans with balances of $10,000, $43,000 and $55,000?

The median here is $43,000 but in reality, this person has $108,000 saved for retirement. Of course to be fair, the average doesn’t take this into account either.

Average 401k Plan Balance By Age

Now that we know the difference between average and median, we can better understand the median and average 401k plan balance by age groups. Unfortunately though, getting a good comparison is tough.

This is for several reasons.

First, as I mentioned, both the median and average can be skewed.

Second, there are all sorts of life factors that enter into the picture. Some people start working earlier than others. Some work in higher paying industries than others.

Then there are life changes that affect plan balances. Maybe one spouse stopped working to raise children so they are no longer contributing to a 401k plan. Or they got disabled or divorced.

The point is, comparing average 401k plan balances by age is virtually impossible. Everyone has their own life situation that dictates just how much they have saved.

Take, for example, a person who is 45 and has $125,000 saved for retirement. If they have only worked low end jobs earning less than $20 per hour, saving $125,000 is a huge accomplishment.

But if that same person was an investment banker who makes $250,000 annually, that amount saved for retirement might be considered a disappointment.

So what are we left to do? We could use the numbers that Vanguard provided as a guide to get a rough idea of where we should be in terms of saving for retirement. But the problem is that most people are not saving anywhere near enough for retirement.

For example, if you look at the 25 to 34 year old age group, you see the average 401k balance is $22,256, and the median is $8,192. To me, these numbers are low, especially for those aged 30 to 34.

Because of this, our best option for determining where we should be with our 401k balance by age is to use this guide.

percent of salary saved

It works by finding your age and then multiplying your salary by the number in the right column. For example, if you are 35 and earning $40,000 per year, then you should have close to $100,000 saved for retirement.

I go into more detail about this along with other options to see just how much money you should have saved for retirement.

There you will find an estimate you can safely rely on.

The Silent Killer Of 401k Plans

Finally, I want to briefly talk about 401k plan fees. These are the silent killers of your retirement accounts. I say this because you pay these fees without knowing it, as they are embedded in the plan itself.

Because you pay these fees, you end up having less money to invest, which forces you to save more.

For example, let’s look at Bob and Ron. Bob has a 401k plan with fees of 1.25%. Ron has a 401k plan with fees of 0.40%. They are both 45 years old, have $200,000 in their account, and both plan to retire at age 65. They also both earn the same 8% annually. For simplicity, we will assume they won’t add any more money into their plans.

At age 65, here are their account balances.

401k plan value 20 years

With all factors being the same, Ron ends up with over $135,000 more than Bob. This is all due to the lower fees he is paying in his 401k plan.

Over the 20 years, Bob paid over $106,000 in fees while Ron only paid $37,000. Because of the smaller amount paid in fees, Ron’s money was able to compound faster and grow larger than Bob’s.

The bottom line is that fees matter. They make a huge difference in the long run. If you have no idea how much fees are costing you, you need to find out.

Luckily, you can easily do this with Personal Capital. Simply link your 401k account and they will tell you just how much money you are paying in fees. They also provide an interactive graph that you can play with.

Here is a screenshot of what it looks like.

personal capital fee analyzer summary

You can learn more about getting started with Personal Capital for free here.

Final Thoughts

Wanting to see how your 401k balance compares to others is natural. But you shouldn’t be comparing yourself to anyone for the simple fact that there are too many variables.

Trying to do so is simply a waste of time. Instead, focus on saving as much money as you can and compare your savings to the calculation I provided.

This will provide you a good estimate of where you stand. And if you want a more concrete idea, get started with Personal Capital. It is by far the best tool I have used for figuring this stuff out.

4 thoughts on “The Surprising Average 401k Plan Balance By Age”

  1. Thanks for explaining the difference. I'll be more aware of how the study/survey measured the findings.

  2. What is also staggering is that only about one tenth of one percent of 401K plans have a million dollar or higher balamce in spite of the huge number of boomers that are retiring having been in the plans for thirty or more years. That is tragic because it should have been possible for many more to have achieved that.

  3. Ooof, wow. I am below average for both (though above the median for my age group!) but I sort of expected that, given that I rolled a former 401(k) over to an IRA when I left that job. I wonder if that accounts for some of it – not so many people staying in the same job for long these days, so unless people are rolling their old 401(k)s into their new ones, people could end up with their retirement money scattered into lots of places (including, sadly, a large number of people who cash theirs out upon leaving a job).

    1. Exactly! When you roll an old 401k into an IRA, you skew your numbers when trying to compare them to the average 401k balance. This is why using a guide like this is a good reference point but shouldn’t be looked at as hard fact. Focus more on what you need to retire comfortably and work on saving that amount in various retirement accounts.

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