Diligent contributions and the power of investing really add up over a decade and a half.
Saving for retirement takes decades, and at first it can be slow going. Most young workers don’t have a lot of extra cash and their portfolio’s value creeps up slowly. But over time, as they hold their investments for longer and are able to make larger contributions, they can see greater gains.
Some workers cannot afford to start saving for retirement as soon as they enter the workforce, so by the time they’ve managed 15 years of continuous savings, they’re probably nearing their peak earning years. Here’s a closer look at what the average 401(k) balance is after 15 years of saving, according to a recent Fidelity survey, and what you can do if you’re not where you want to be right now.
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Here’s the average 401(k) balance after 15 years of saving
The Fidelity survey looked at the average 401(k) balance of more than 24 million participants in more than 26,100 of its corporate plans. It found that the average balance after 15 years of continuous savings was $531,200. This figure was slightly higher among baby boomer and Gen X workers.
But there are a few caveats to be aware of. The first is that the survey only included data on workers who have been with the same employer and the same retirement plan for at least 15 years. It doesn’t include those who may have job-hopped a few times, rolled over funds to a new 401(k), or perhaps moved the fund to an IRA after parting ways with their employer.
This was an unavoidable limitation of the survey as Fidelity had no way to track these workers’ savings over 15 years. The survey also didn’t take into account those who were eligible to contribute to a 401(k) but could not afford to do so or those who contributed inconsistently over the years.
The other thing to note here is that $531,200 is the average figure. Averages should always be taken with a grain of salt when talking about finances because it only takes a few high earners to skew the data upward considerably. Fidelity didn’t provide any data on the median 401(k) balance after 15 years of saving, though it’s safe to say this is probably much lower than $531,200. So if you’ve been saving for 15 years or more and you don’t have anywhere close to this much, that doesn’t mean you’re behind everyone else or behind where you “should” be.
How to reach your 401(k) savings goal
Having $500,000 or more in a 401(k) is an incredible accomplishment, but that figure alone doesn’t tell you whether you’re on track for your retirement goal. The only way to determine this is to sit down and estimate how much you’ll need to cover all your retirement expenses.
Many see their living expenses drop in retirement, though this isn’t the case for everyone. Consider how you expect your spending habits and lifestyle to change and use this to estimate your annual retirement expenses. But keep in mind, you won’t have to save all of this alone.
You’ll still get some money from Social Security. You can estimate what your checks might be worth by creating a my Social Security account and looking at the benefit estimator tool to see how much you could get at all possible claiming ages. Multiply these monthly benefits by 12 to get your estimated annual benefit. Then, subtract this from your estimated annual expenses to figure out how much you must cover on your own. For example, if you think your annual expenses will be $60,000 and you think you’ll get $24,000 from Social Security, you’ll need to cover the remaining $36,000 on your own.
One popular rule of thumb says you should save 25 times your out-of-pocket annual living expenses in order to stretch your nest egg over 30 years. Continuing our example above, if you thought you’d need $36,000 in savings to cover annual expenses that Social Security doesn’t, your savings target would be $900,000. Alternatively, you can use a retirement calculator to help you estimate how much you need to save.
Once you have your target, the next step is saving for it. A retirement calculator can help you figure out the monthly savings goal you’d need to meet to reach your target based on your estimated investment rate of return. Consider being conservative and using a rate of about 6% so your plan isn’t thrown off if your investments grow slower than you’d hoped.
Ideally, you’d have all the extra cash you need, but budget is a limiting factor for most. So you may have to reduce your contributions to just what’s manageable for you. That’s OK. But whenever possible, aim to increase your contributions. Recalculate your monthly savings goal as needed over time until you reach a savings rate you’re comfortable with.