When planning for retirement, many Americans rely on 401(k) savings as a key component of their financial strategy. However, recent data suggests that the median 401(k) balance is much lower than many expect. According to Vanguard’s report titled “How America Saves 2023,” the average 401(k) balance varies widely by age group.
According to Vanguard data, the average and median balances are:
Age Average account balance Median
Under 25 $5,236 $1,948
25-34 $30,017 $11,357
35-44 $76,354 $28,318
45-54 $142,069 $48,301
55-64 $207,874 $71,168
65 and over $232,710 $70,620
Why is there a gap between the average and median balances? This is due to the savings habits of high-income earners, who are likely to save close to the $23,000 annual limit in 2024, and the balances of other participants. reflects that is very low or zero.
Both the average and median balances are well below the typical balance. A $2 million retirement nest egg. If you follow the 4% withdrawal guideline, a balance of $2 million would mean you could withdraw $80,000 per year without negatively impacting your principal. This amount takes into account increased medical costs during retirement and maintaining a state similar to your pre-retirement lifestyle.
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Automatic registration assistance
Despite the benefits of 401(k) plans and the immediate return of “free money” from internal matching, not all eligible employees participate in the plans. But automatic enrollment is the main reason for his higher 401(k) participation rate in the past, according to Vanguard data. Since the Pension Protection Act was enacted in 2006, the use of automatic enrollment has more than tripled. Currently, about 58% of plans and 76% of his plans with 1,000 or more participants have implemented this feature. Automatic enrollment has removed a significant barrier to participation in retirement plans by avoiding the inertia and procrastination that prevent voluntary enrollment.
Participation rates vary by age, and Vanguard notes that participation rates are lowest among employees under 25, who are often juggling the realities of student loan payments and housing costs. The study found that only 62% of this younger group contributes to their employer’s plan, compared to more than 80% of those in the 35-64 age group.
Trending: Can you guess how many Americans have successfully saved $1 million for retirement? This percentage may shock you.
Move your balance above the median
401(k) plans offer many benefits for saving for retirement, including a tax-advantaged way to save, because contributions are typically made in pre-tax dollars. This means your taxable income will decrease. 401(k) funds grow tax-deferred, allowing your investments to compound over time without being taxed each year. All 401(k) plans are portable. This means that if you change jobs, you can roll over to your new employer’s plan or Individual Retirement Account (IRA).
Follow a few tips to maximize your retirement savings with your 401(k).
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Contribute the maximum amount allowed each year.
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Take advantage of maximum employer matching contributions. For example, if her employer offers her a 100% match up to 6%, contributing less than her 6% of her salary will result in her giving up some of her 100% benefit.
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If you’re over 50, consider making catch-up contributions. If you’re 50 or older, you can contribute up to an additional $7,500 per year, with an annual limit of $30,500.
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Review and adjust your posts regularly. Consider your salary increase and choose to withdraw contributions from your annual bonus.
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please talk to financial advisor To create a retirement plan.
Several obstacles impede workers’ ability to save. Rising inflation means more money goes toward food and other necessities. High college costs can create student loan debt for young people and their parents, limiting investment. Job insecurity is also a concern, with workers worried about layoffs and the associated economic impact. Despite these obstacles, you can beat the average savings balance by starting early, understanding investment risks, and steadily increasing your contributions to unlock the power of compound investing.
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*This information is not financial advice. To make informed decisions, we recommend individual guidance from a financial advisor.
Alan Richardson is not a licensed financial advisor and the content herein is for informational purposes only and does not constitute, and is not intended to constitute, investment advice or investment services. While Richardson believes that the information contained herein is reliable and obtained from reliable sources, Richardson makes no representations, warranties, express or implied, as to the accuracy or completeness of the information. Or no promises.
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This article Median 401(k) balances across all age groups are much lower than expected: Many over 50 have barely enough balances to buy a new car. originally appeared Benzinga.com
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