How Does Your 401(k) Balance Compare With the Average?

When it comes to your retirement accounts, comparing how much you have saved with the national average can help you benchmark your savings.

For most employees, an employer-sponsored 401(k) account is a significant piece of their retirement planning. Knowing how the balance in your 401(k) stacks up against the averages for your age range may inspire you to adjust your savings rate or perhaps choose different investments.

Key Takeaways

  • A 401(k) is a tax-advantaged retirement savings plan, often with a matching contribution from an employer.
  • Compare your 401(k) with the average account size range for your age group to help you set (or re-set) your savings goals.
  • Average 401(k) contributions have increased in recent years, as have average balances.

What Is a 401(k)?

A 401(k) is an employer-sponsored retirement plan that offers tax savings to the employee. There are two types of 401(k)s—traditional and Roth—and they offer tax advantages in different ways.

  • Traditional 401(k) contributions are made with pretax money. Your taxable income for the year is thus lowered, while that money is diverted into your retirement savings account. You'll pay the income taxes due only after you retire and start making withdrawals.
  • Roth 401(k)s contributions are made with after-tax money, so you don't get an immediate tax break. However, once you retire and start withdrawing the money, you'll owe no further taxes, even on the earnings.

Employees choose the percentage of their income that they want to contribute from their paychecks, up to government-set annual maximums. The company may match some of the employee's contributions. The employee decides how to invest the money. Typically, they choose from various mutual funds offered by the plan.

A 401(k), especially one with an employer match, can be an ideal way to grow your retirement nest egg because of its tax advantages and the potential employer match.

What Is the Average Balance for a 401(k)?

The Internal Revenue Service (IRS) sets yearly limits for how much employees can contribute to their 401(k) each year. For 2022, workers can contribute up to $20,500 per year. Those 50 and older may contribute an additional $6,500. For 2023, the numbers rise to $22,500, plus an additional $7,500 for older workers.

According to a recent report by Vanguard, savings rates are increasing slightly, most likely due to automatic contribution plans. The average percentage contributed by employees for 2021 was 7.3%, and it was 11.2% when employer matches were factored in. (Not all employers match contributions.)

The overall average amount in a 401(k) account is $141,542, but this number includes the balances of workers across all ages and tenure. When broken down by age, the average account amounts are significantly different.

  • Under 25—$6,264
  • 25–34—$37,211
  • 35–44—$97,020
  • 45–54—$179,200
  • 56–64—$256,244
  • 65 and older—$279,997

These numbers are only part of the overall retirement savings picture. Self-employed people may invest in individual retirement accounts (IRAs) or taxable brokerage accounts. Public employees and military personnel, among others, have their own employer-sponsored retirement plans. And, of course, people with 401(k) accounts may have long-term investments outside their employer-sponsored plans.

Tip

Increasing your contribution by a single percentage every year can help you meet your retirement goals. Consider investing a portion of any bonuses that you receive, too.

What to Do If You’re Behind

Financial needs in retirement vary widely based on the individual's circumstances and goals, but financial advisors often recommend saving enough to replace 80% of your current salary.

If your balance is lower than you would like and you’re not contributing the maximum to your account, you can take steps to catch up. First, make sure that you’re contributing at least as much as your employer will match. This matching contribution is essentially free money.

If your cash flow is tight, try to increase your contribution percentage incrementally as your salary increases. If you’re close to retirement, remember that you can contribute more beginning at age 50 as a catch-up contribution.

You can also save outside of a 401(k). You can open a traditional or Roth IRA on your own with a bank or a credit union. You cannot contribute as much each year as you can with a 401(k), but you can get the same tax advantages. For 2022, you can contribute $6,000, plus $1,000 if you’re 50 or older. For 2023, the maximum increases to $6,500, with the same $1,000 catch-up contribution.

Finally, you can invest extra funds in a traditional brokerage account. You won't get the same tax advantages, but you can increase your retirement funds.

Do All Employers Offer a 401(k) Match?

Not all employers offer a 401(k) match, but many do. It's a particularly powerful job incentive.

Employers who match contributions set a limit on their contributions, often equalling 3% to 5% of the employee's salary. They generally impose a vesting period of several years before the full match is available, so if you change jobs you can lose some of that match.

Is There a Limit to How Much My Employer Can Contribute to My 401(k)?

There is a limit to how much you can contribute each year to a 401(k). There are also limits to how much your employer can contribute.

For 2022, total contributions, including your own and your employer's, cannot exceed $61,000 per year. If you’re age 50 or older, the total increases to $67,500. In 2023, the total combined contribution limits are $66,000, or $73,500 for employees over age 50.

When Can I Start Withdrawing From My 401(k)?

You can withdraw from your traditional 401(k) after age 59½ for any reason without having to pay early withdrawal penalties. You can withdraw the money earlier without penalty for certain exceptions.

You can withdraw your contributions from your Roth 401(k) at any time with no penalty. But you must pay taxes and potential penalties on earnings if you withdraw them early.

The Bottom Line

If you’re behind in retirement savings compared with the average in your age group, consider increasing your contributions. Think of your 401(k) as one tool in your retirement toolbox. In combination with IRAs, taxable brokerage accounts, and Social Security income, they can be a powerful tool for funding your retirement years.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Internal Revenue Service. “Traditional and Roth IRAs.”

  2. Internal Revenue Service. “IRS Announces Changes to Retirement Plans for 2022.”

  3. Internal Revenue Service. "401(k) limit increases to $22,500, IRA limit rises to $6,500."

  4. Vanguard Institutional. “How America Saves 2022,” Page 47 (Page 49 of PDF).

  5. Internal Revenue Service. "401(k) limit increases to $22,500, IRA limit rises to $6,500."

  6. Internal Revenue Service. “Retirement Topics — 401(k) and Profit-Sharing Plan Contribution Limits.”

  7. Internal Revenue Service. "Retirement Topics - Exceptions to Tax on Early Distributions."

  8. Internal Revenue Service. “Retirement Topics — Exceptions to Tax on Early Distributions.”

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