Here’s How Much the Average American Has in Their 401(k)

Reaching your retirement savings goals is nearly impossible unless you invest your money through a tax-advantaged account like a 401(k). These savings cars are often offered by employers, and from 2023 you can contribute up to $22,500 in pre-tax earnings each year ($30,000 if you’re 50 or older).

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So how does the average American fare when it comes to funding their 401(k) plans? Let’s take a look at the typical 401(k) balance, plus some tips for increasing that amount.

Average 401(k) Balance by Age

Investment firm Vanguard analyzed data from about 5 million retirement accounts as part of its How America Saves report. According to the latest results, the average 401(k) balance was $141,542 in 2021. That’s up about 10% from 2020.

As you might imagine, the average balance varies quite a bit by age, with older workers amassing larger portfolios. In the table below you can see the average and median balances for people in different age groups.

If we take a closer look at these numbers, it becomes clear that many workers may not have enough money saved in their 401(k) plans — especially when we consider the median balance, which prevents outliers from skewing the data.

Fidelity Investments recommends that you have about 10 times your salary saved by age 67. So for someone making $80,000 a year, they should have a portfolio worth $800,000 by age 67 to comfortably walk away pension.

Of course, it’s possible that many savers also have money elsewhere, such as IRAs, taxable brokerage accounts, and savings accounts. Still, the typical 401(k) balance seems perilously far from the recommended retirement savings goal.

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Ways to Grow Your 401(k)

Whether you’re new to the workforce or a seasoned investor, there are steps you can take to ensure your 401(k) balance grows to its full potential.

Start ASAP

To develop a substantial retirement portfolio, it’s important to start early and be consistent with your contributions, according to Andrew Latham, a certified financial planner and director of content for SuperMoney.com. “Even small, regular contributions can compound over time and make a significant difference to your retirement savings,” he said. For example, saving $200 a month for 30 years can grow into a retirement fund of approximately $227,000, assuming an average annual return of 7%.

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Diversify your investments

Latham said diversification is key when it comes to investing in your 401(k). Although your investment choices may be somewhat limited according to the plan provider, you should aim to invest across different asset classes, including mutual funds and ETFs, to minimize risk and maximize growth potential. If you’re not sure how to choose your own investments, many plan providers offer free help from a financial advisor.

Beware of fees

“High fees can eat into your returns, so be sure to compare and choose low-cost investment options,” Latham said. To illustrate, he explained, imagine you invest $10,000 in two different retirement funds, one with an expense ratio of 0.5% and another with 1.5%. After 30 years, assuming a 6% annual return, the fund with the lower expense ratio would be worth about $49,840, while the one with the higher expense ratio would be worth only about $37,450—a difference of $12,390 on a $10,000 investment.

Take advantage of matching

As an additional employee incentive, some employers will match part of the pension contributions. For example, your employer can match 50 cents for every dollar you contribute, up to 6% of your salary. So be sure to contribute at least 6% of your salary to take advantage of the full match, Latham said. That’s free money you don’t want to leave on the table.

What if I don’t have a 401(k)?

It is important to note that not all Americans have access to a 401(k). According to Census Bureau data, as few as 14% of employers offer one. Yet 79% of Americans work for an employer that sponsors a 401(k)-style retirement plan. This is because large companies employing large numbers of workers are the most likely to sponsor pension plans.

If you don’t have access to a 401(k), Latham noted, you can still save for retirement through an Individual Retirement Account (IRA). Like a 401(k), an IRA also comes with special tax benefits that can help you save and earn more. “There are different types of IRAs to choose from, so do your research and choose one that aligns with your retirement goals and risk tolerance,” Latham said.

Another way to save for retirement if you don’t have access to a 401(k) is to invest in a taxable brokerage account. “Although you won’t receive any tax benefits like you would with a 401(k) or IRA, you can still invest in low-cost index funds, access your savings whenever you want without penalty, and still benefit from long-term compounding” Latham said.

No matter how you save for retirement, Latham stressed the importance of regularly reviewing and adjusting your retirement savings strategy as your life circumstances change. “Factors such as marriage, children and career changes can affect your retirement goals and require adjustments to your savings plan,” he said.

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This article originally appeared on GOBankingRates.com: Retirement 2023: Here’s How Much the Average American Has in Their 401(k)