Fidelity recently came out with its average and median 401(k) balances by generation. They are as follows:
Gen Z: Average $7,100, Median $2,500
Millennials: Average $44,900, Median $15,500
Gen X: Average $145,500, Median $44,000
Boomers: Average $215,000, Median $61,200
How does your 401(k) balance compare to the average and median balances for your generation?
Low Median 401(k) Balances Across Generations
What stands out most from the data is how low the 401(k) balances are for every generation. I hope your 401(k) balance is way higher than the figures above!
Please realize this data is only for Fidelity accounts and many workers have multiple 401(k) accounts or rollover IRAs due to job hopping. That said, Fidelity is one of the largest 401(k) providers in America.
If you are a Boomer, there's no way you can retire off a median 401(k) balance of only $61,200. Good thing Boomers have the largest percentage of people with valuable pensions. In addition, Boomers are still able to take full advantage of Social Security benefits. Boomers may also have more 401(k) accounts.
I'm most concerned about Millennials with only $15,500 and Gen Xers with only $44,000 in their 401(k)s. Only a small minority of people in these generations have lifetime pensions. In addition, at the current rate, only about 70% of Social Security benefits will be paid out when these two generations reach their full retirement age of 67.
Gen Z, at least, still has decades of work and savings to go.
We Should All End Up 401(k) Millionaires
Perhaps I'm more disappointed about the 401(k) balances by generation compared to the average person because I strongly believe the majority of Financial Samurai readers will become 401(k) millionaires.
Maxing out a 401(k) as soon as possible is a fundamental personal finance move. Once your income is above $80,000, there is little excuse not to max out your 401(k).
Although cash flow may feel tight initially, you'll learn to live within your means within a few months after contributing the maximum. Then it's just autopilot from there.
If you're curious about when you'll become a 401(k) millionaire, I put together this chart using $18,500 a year in average 401(k) contributions. In 2023, an employee can contribute a maximum of $22,500.
Using a reasonable 7% annual compound rate of return and annual contributions of $18,500, your 401(k) will grow to $1 million in about 22.5 years. If you start contributing $18,500 a year at age 26, you'll be a 401(k) millionaire at age 48.
No Longer A 401(k) Millionaire
What's sad is that I used to be a 401(k) millionaire at the beginning of 2022. My 401(k) balance rose to about $1.1 million at its peak. Now it's at about $995,000 after being down to as low as ~$850,000 in October 2022.
Despite no longer being a 401(k) millionaire at 46 years old, I'm hopeful the balance will surpass seven figures again. All I've got to do is invest the whole portfolio in Treasuries yielding 5%+ for one year. Ah, the temptation to invest risk free!
Here's the thing. There have been zero contributions to my 401(k) since 2012 when I left my job. If there were, I would have contributed about $200,000 over 11 years, and my employer would likely have also contributed another $200,000. The $400,000 in contributions might have grown to $600,000, meaning my 401(k) balance would actually be closer to $1,595,000.
I also don't assume employer 401(k) matching or profit sharing in my 401(k) millionaire chart above either. Therefore, there's a high probability that you can become a 401(k) millionaire even sooner than my estimates.
Before you decide to retire early or leave your job for something new, please don't forget to calculate the retirement benefits you will be forgoing. Over time, it can add up to a significant amount.
Here's a post explaining why the median 401(k) balance is so low. In a nutshell, life gets in the way! If you want to build a comfortable amount of wealth for retirement, you must focus.
401(k) Balances Are Much Lower Than What's Needed For Retirement
As you can recall from the post, How Much People Want In Retirement, the amount of money survey participants thought they needed for retirement for all ages was $1.3 million. Meanwhile, the amount currently saved by all ages was $89.3K.
There's clearly a huge disconnect between what people want and what people will actually do to get what they want. Review the chart again below. It's a great cross reference, especially if you are skeptical about the low 401(k) balances across generations.
Based on the data above, the 401(k) is just not cutting it as a significant source of funds for retirement. The median 401(k) balance across all generations is only around $35,000, which is much lower than the median saved by all participants of the Northwestern Mutual online survey of $89,300.
The good news is that people are saving money outside of their 401(k). Money outside of tax-advantaged retirement accounts is the source of tappable passive investment income for early retirement or work flexibility. The other good news is that many employees have more than one 401(k) plan or have rollover IRAs, thereby increasing the likely overall 401(k) balances.
The bad news is that $89,300 is still way below what people think they need in retirement. Even if you 10Xed the median 401(k) balance across all generations to account for multiple 401(k) plans per person, you’d still only get $350,000. Yet, curiously enough, there is no ongoing retirement crisis.
The government has offered new retirement saving initiatives under the Secure Act 2.0. However, maybe the government doesn't need to do more if so many employees are already not taking full advantage. Here's the full Secure Act 2.0 document from the Senate if you're interest in all the details.
Stop Neglecting Your 401(k) Contributions
Even the average 401(k) balances by generation are not that impressive. Sure, having $145,500 in your 401(k) as a Gen Xer is better than nothing. But that money will disappear in five years if you spend just $30,000 of it a year.
If you find your 401(k) balance closer to the median or average balances for your age group, get fired up to start contributing more! Just think about your annual 401(k) contribution as a temporary pay cut that immediately shields your taxable income.
Age 59.5 will come sooner than you know it. When it does, you'll be happy you contributed as much as possible for decades.
Reader Questions And Suggestions
Why do you think the average and median 401(k) balances by generation are so low? Are people saving money for retirement elsewhere? Or are people simply not saving enough money for retirement? Could pensions, Social Security benefits, inheritances, and rollover IRAs be picking up the slack?
1) Diversify into real estate. If you want to have financial freedom sooner, then only investing in a 401(k) is not good enough since it can't be touched without penalty until age 59.5. You must also build an investment portfolio that generates useable income today.
Consider investing in private real estate through Fundrise. Fundrise manages over $3.3 billion invested mostly in Sunbelt residential and commercial real estate, where valuations are lower and yields are higher.
I've personally invested over $140,000 in Fundrise to diversify my investments and generate more passive income. You can get started with as little as $10.
2) Track your finances diligently. Sign up for Empower, the best free online financial tool to manage your 401(k). With Empower, you can x-ray your 401(k) portfolio for excessive fees, track your net worth, and better plan for your retirement.
I've been using Empower to track my net worth since 2012. The more you can stay on top of your finances, the better you can optimize your finances. Both Fundrise and Empower are affiliate partners.
3) Subscribe to Financial Samurai. Join 60,000+ others and sign up for the free Financial Samurai newsletter. You can also subscribe to my podcast on Apple or Spotify. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. I helped launch the modern-day FIRE movement.