One major benefit of being a company’s employee (as opposed to being self-employed) is that you may be entitled to perks like paid vacation days and subsidized health insurance. You might also have access to a 401(k) plan that makes it fairly easy for you to save for retirement.
If you’ve been contributing to a 401(k), you may be wondering how your balance compares to the average saver’s. Here’s what you need to know.
401(k) balances are on the rise
Fidelity reports that the average 401(k) balance was $125,900 as of the first quarter of 2024. What’s interesting, though, is that $125,900 marks an impressive 16% increase from just a year prior.
However, that increase isn’t necessarily the result of workers saving more money from their own paychecks. Rather, it’s that the stock market saw impressive gains during that time, which is likely the main reason why 401(k) balances are up.
Are you happy with your 401(k) balance?
The fact that the typical 401(k) saver has $125,900 may be a point of interest to you. But don’t panic if your savings balance is much lower. And similarly, don’t assume that you’re all set for retirement if your balance is higher.
One missing piece of information from Fidelity is the age of the average 401(k) saver. A balance of $125,900 is great for someone in their 30s. But if you’re 61 with $125,900, you may have some catching up to do. Similarly, if you’re 24 and have way less than $125,900, that doesn’t mean you’ve done a bad job of saving for retirement. It simply means that you haven’t had time to ramp up your contributions and take advantage of stock market growth.
But either way, if you aren’t happy with your 401(k) balance, there are three things you should do:
- Try to increase your savings rate
- Make sure you’re contributing enough to claim your full employer match
- Make certain you’re investing your money aggressively if you’re many years away from retirement
The first two points are pretty obvious. If you’re currently contributing 2% of your pay toward retirement savings, try to make it 3% next month, with the goal of getting to 4% by the end of the year. And if your company matches contributions of up to 6% of your salary, you should try very hard to get to that point to snag your free money in full.
Where to put your money
As far as investing goes, stocks are your best bet if retirement is decades away. Unlike IRAs, 401(k) plans generally don’t let you buy stocks individually. But you can buy shares of an S&P 500 index fund, which allows you to invest in the broad market without having to do the legwork of choosing individual stocks.
Another thing to look out for in your 401(k) is to see if you’re invested in a target date fund. When you sign up for a 401(k) but don’t choose your own investments, you’re often put into a target date fund automatically. But these funds are notorious for charging high fees that can eat into your returns. And they may not invest as aggressively as you want them to, stunting your 401(k)’s growth.
Keep at it to grow your savings
You may feel discouraged if your 401(k) balance is nowhere close to the average. But don’t despair, especially if you’re still pretty new to the working world.
Let’s say you’re 30 years old. You may not be retiring for 35 more years. So even if your 401(k) balance is $0 right now, let’s imagine you’re able to save $250 a month between now and age 65, which is a reasonable assumption.
If you invest your 401(k) in S&P 500 index funds that generate a 10% average annual return, which is consistent with the stock market’s average, you’re looking at about $813,000 in savings. That’s far from shabby. So even if your 401(k) is behind the average now, it doesn’t mean you can’t catch up, and then some.
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