The average 401(k) account balance is now over $100,000 thanks to a long bull market since 2009. Even during a global pandemic, risk asset investments are doing well.
Investment management firm Vanguard reported the average account balances for 401(k) plan participants reached a record high of $120,650 at year-end 202.
Meanwhile, Fidelity reports that the average 401k balance is now around $120,000 as of February 10, 2021. Among employees participating in a 401k for at least 10 years, the average balance hit $251,600, up 12% from a year ago.
Based on the Investment Company Institute (ICI), 51 million American workers were active 401(k) participants. 51 million is roughly half the US workforce out of a total population of 313 million. Hence, if the average 401(k) balance for half the US workforce is $101,650 then I dare say things aren’t as bad as they seem.
With MyRA or IRA making up for the other half of the working population with $5,500 a year contributions and Social Security, personal savings, personal investments, and pensions taking care of the other 200 million Americans, we’ve got America covered.
See: How Much Should I Have In An IRA By Age
OK, maybe it’s not so easy. We’ve got a lot more work to do to ensure a great retirement life, so let’s revisit my recommended 401(k) savings amounts by age or work experience to make sure. I also provide a savings balance guide by income chart as well.
Recommended 401(k) Balance BY AGE OR WORK EXPERIENCE
Here is my 401(k) balance by age recommendation. I firmly believe everybody can boost their 401(k) balance each year to become a 401(k) millionaire by 60.
My numbers are $29,000 – $250,000 higher than Vanguard’s reported average because we are not average. We are personal finance enthusiasts who spend time reading and writing about money, retirement, and financial freedom.
The average person is saving less than 10% of their income and buying cars worth 50%+ of their annual gross income (median price car is now $31,000 vs. the median household income of $51,000). In other words, the average American will be depending on us to support them. Awesome!
401(k) Balance Assumptions
My 401(k) balance figures are aggressive because of the assumptions a person finds full-time median income employment by 23, and maxes out his or her 401(k) by 26.
I also assume people care about their financial future, which is not apparent based on existing graduation rates and savings metrics.
For the low end of the chart I conservatively provide no growth. For the high end of the chart, I estimate a 5% constant rate of return throughout their entire working lives.
Both assumptions are conservative given the historical ~8% annual return of the S&P 500.
Flexibility of The 401(k) Balance Chart
The recommended 401(k) amounts above can also be used as a guide for all your pre-tax retirement accounts such as your IRA, ROTH, ROTH 401(k), SEP IRA + investments by age if you wish.
You can also use the chart as your combined savings for you and your spouse, although I always highly recommend each spouse build their own financial safety net because things happen.
But based on my recommended net worth allocation, there has to be more to these numbers – namely property, private investments, your business and a potential X Factor.
Ideal Overall Savings Amounts
In a financially robust world, I’d like everyone who has access to a 401(k) to max out their 401(k) and then continue to save and invest all they can in an after-tax investment account. Maxing out your 401(k) probably requires around a $50,000 income to feel comfortable, although there are many examples of folks who are able to put away $17,500 on much less.
To “feel comfortable” though, is really a luxury. If you feel comfortable in your savings journey, then you are not saving enough. The goal is to really try and increase your income while maintaining your savings habits. Have a look below.
As you can see from the chart, maxing out your 401(k) and accumulating post-tax savings gets easier the more you make. The system I encourage everyone to undertake is to max out their 401(k) first and then multiply the savings % in the chart to your after tax income to save more. So long as you are maxing out your 401(k), a realistic worst case scenario is that you end up with the amounts in the “Low End” of the first chart in this post.
The ideal income level hovers between $150,000 – $250,000 because you’re able to max out your 401(k) and still save $35,500 – $53,000 after tax if you stay disciplined at a 35% savings percentage. Your marginal Federal tax rate isn’t egregious at 28% either so you don’t feel like you’re getting pounded by the government.
See: Expense Coverage Ratio Targets
Save Often And Aggressively
The $101,650 average 401(k) figure for the end is a psychologically important number. With over $100,000 in savings, a 10-20% move in performance really starts making a difference compared to the maximum 401(k) contribution of $17,500. It’s all about building the financial nut so that your returns start overtaking your contributions.
Once you get to significant milestones such as the $100,000 mark, you’ll get even more motivated to save more. Corrections in the stock market will feel more painful. But over time, you should figure out a proper asset allocation of stocks and bonds that matches your risk tolerance.
Make savings a priority by continuously thinking about the financial freedom you will achieve. The sacrifice is worth it because you’ll realize after a while that savings is no sacrifice at all.
Free Wealth Building Recommendation
Run your portfolio through Personal Capital’s free 401k Fee Analyzer tool. The tool will show you exactly how much you are paying in fees a year, your total fees you’ll pay until your desired retirement age, and how many years your fees are lopping off the years until retirement.
I ran my 401k through the tool and it showed I was paying $1,700 a year in fees I had no idea I was paying. As a result, I reallocated my funds into lower cost index funds of similar investments to save about $1,300 a year, and more importantly, about 2 years less time I’d have to wait to achieve my projected 401k goal.
They’ve also come out with their incredible Retirement Planning Calculator that uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes.
Build Wealth Through Real Estate
In addition to investing in stocks and bonds through your 401k, I recommend diversifying into real estate as well. Real estate is a core asset class that has proven to build long-term wealth for Americans. Real estate is a tangible asset that provides utility and a steady stream of income if you own rental properties.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
With real estate, you can earn a steady stream of passive to semi-passive income well before age 59.5, which is when you can withdraw from a 401k penalty-free.
Take a look at my two favorite real estate crowdfunding platforms:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
Both platforms are free to sign up and explore.
I’ve personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.
Follow my 401k savings by age guide. But in the meantime, also build a passive income portfolio so you can live a better life today.
[…] hit $251,600, up 12% from a year ago. Separately, in March of 2014, Vanguard reported that the average 401k balance has now shot up to $101,650. For workers 55 years of age or older, the average balance is […]
I just wish I would have known all this info 25 years ago . I am 56 in the past 2 years started to max everything out in my 401 and try to play catch up. It’s depressing at times knowing would I could have did , and didn’t. One thing I know for sure none if this is for wealthy only anyone and put something away . Right know I’m up to 15 percent with a 4 percent company match . Most of my money is going toward stocks . Right now I have 40,000 in there and just started a few years ago . Any other input would be accepted over here ty
Sam – couple questions for you:
1) How do you view company matches? I contribute ~$12.5K per year to my 401k (the matching limit for my plan / eligible comp), but including company match and small annual pension, $30K is contributed to my account every year. I consider this as having “saved” $30K per year in my 401k.
2) How do you view restricted stock? Do you consider that pre or post-tax savings (vests over three years)? And do you view that as savings when it’s granted or when it vests (and you get killed by taxes)?
My overriding question is – how much would you say I save every year? My breakdown last 12 months:
– $12.5k personal 401k contribution
– $17.5k total company 401k match
– $30k granted RSUs
– $8k vested RSUs from previous grants (after tax – $15k vested as reportable income)
– $40k after tax savings
30 years old. $310 after tax savings. $140k in 401k. $65k unvested RSUs. $10k checking.
Thanks as always for you work.
Financial Samurai says
1) Yes, I consider you have saved $30K.
2) I would take all your pre-tax contribution and multiply it by 0.7 to get a post tax amount + your after tax savings amount. We all eventually have to pay taxes.
Welcome to my site and good work saving so much! You won’t regret it.
Thanks for the response Sam. Your comment makes a lot of sense. I always thought of my true net worth that way (applying discount to pre-tax), but for some reason did not extend to savings.
I understand different plans may make the alternative impossible, but all your savings articles (that I’ve read so far) assumes a max $17,500 401k contribution. Most people should really be saving more than that including employer contributions (and would debunk some commenters questioning your historical 401k contributions by referencing personal contribution limits).
Other question — I’ve been hesitant to buy an apartment in NYC. While I’m obviously not a big spender in general, I can’t fathom buying a run-down place; $800k would be the least I would spend (and that’s really pretty close to run-down here for a 2br). I know you place a high value on real estate, but at any point does it make sense for someone in my situation to continue renting? If I had a family I would surely buy, but not knowing what the future holds adds an additional wrinkle.
Thanks Sam. Long time reader, but seldom commenter.
Just lost a long winded response, so I’ll keep this succinct. I know you place a lot of value on real estate, but does it ever make sense for someone in my shoes to continue renting? I’m single and live in NYC. I’ve been looking at places for a while, but, although I’m not a big spender, can’t envision myself buying something less than $800k or $900k (and that’s on the low end of RE market here). That seems like a HUGE financial decision for someone unaware of what his personal family life will be in the near future. Thoughts?
Financial Samurai says
One of my biggest financial regrets was not buying a 2/2 for $760,000 on 22nd between Madison and Park. Probably worth $1.6 for this double balcony, 1,200 sqft place.
When you can buy, id buy. But buy what you’d be happy living in for 5+ years.
I just glanced at my 401k earlier this evening, and found that my increases YOY in the funds that are available, were simply great! Almost everything was 24%-25%. Heck, I even switched my “core account” to be the high-interest bearing account which had an increase of 9.6% last year! Yipee!
Hopefully I can continue doubling the growth in the account for another 2-3 years albeit painful as it is Sam … thanks for that! :-)
Spencer in Seattle says
Thanks for the great post. I’m almost 24 and my wife and I have a net income of around 120k/year. We have ~$25k in our 401ks and ~$30k in our Roth IRAs with Vangaurd. We max out our IRA and almost max the 401ks. Off to a good start, but have a lot of work to do.
Quick question: You mentioned that you you would max out 401k before Roth IRA, correct? Our expense ratios are crazy high with our 401ks, and Vanguard is so cheap. Do you take that into account? I’d love your thoughts on this.
Thank you! -Spencer in Seattle
Financial Samurai says
I’d still max out the 401k. How high is high regarding your cheapest funds?
In Germany, we don´t have a 401(K) Account.
There is an allowance from 801 EUR per person.
If you have more the 801 EUR dividends, you have pay taxes for this amount.
Ca. 30% or if your own tax rate is lower (because you earn not much money), the own tax rate instead of the 30%.
I think the US-taxes are better for investors than in Germany! :-(
Financial Samurai says
I hear the pension system is quite common in Germany though no? I met a German fella who works at Deutsche Bank and he plans to work until 55 to collect the lifetime pension which he says is “very healthy.”
To those who are just getting started saving for retirement, I say don’t give up! I started saving 10% when first employed at age 24 and I’m now 55 with over $600,000 in my 401k. Keep contributing and it can happen.
I continue to enjoy your amazing site…I discovered it about a year ago. Thank you so much for the clear, concise, challenging advice. You don’t let us off the hook and I think we (the lot of us, at all income and education levels) need a wake up call.
The 401K suggested savings chart has interested me for some time because of the assumption that people simply begin to work after college or high school and that is the departure point. But there are those of us who take an alternative route to full employment.
I am 44 but with only 10 solid years of full time white collar employment. I am at 193K in the 401K and $1200 in a pretty newly established Roth IRA (1% contribution). So if I look at the chart by age….I am in trouble. If I look at the chart in years worked, I am doing ok.
I went with a 15% contribution to my 401K for around 8 years solid…that is how I was able to catch up. I am now at 12% but I have occasionally gone lower in order to build cash reserves. The Roth will serve as college and other support funding for my two step-children aged 3 and 14 (I seem to do everything about 10-15 years after my peers, just got married back in August).
I think the important thing for me has always been, living within my means, not getting caught up in buying the next big thing, and just looking down the road and preparing. A huge step forward for me was saving my extra income and paying off 26K in student loan debt during those first 8 years….I used all the cash I had amassed and sent it all in. I was back to zero and that was scary but I did it.
We can do this!
Financial Samurai says
Sounds like you’ve got some good momentum behind you based on your work experience. Keep it up! What were you up to before age 34?
To answer your question about my path in life up to 34:
–Graduate HS in 1987
–Do almost nothing productive until 21…except that I learn that there are quick roads to nowhere (so maybe I did have something productive come of it).
–Attend University until I am 25
–Volunteer in Peace Corps overseas for two years (really life changing)
–Come back to the states in 1997, work in State government then for a University system…realize that is not enough so time for Graduate school
–Three years of Graduate school which I absolutely loved and where I learned to truly apply myself including searching for every last grant/assistantship there was
–Began a public service career in 2003 and have been there ever since, living very well within my means: Paid off student loans, drove a 1991 Civic until just last year, only bought my first flat screen TV last year, I cook at home most often and reserve going out as a special treat
There’s my story!
Boy, I did a sample savings list based on your recommendation and didn’t leave a lot to live on.
Say a $120K annual pay person:
24.0K post tax savings
18.0K Fed tax
8.0K SS/Medicare tax
7.0K extra principle (I realize money is cheap right now but…)
3.5K property tax
24K left for expenses
That’s like Top Ramon territory. Can you say a bit more about the post tax savings rate? I realize “you can’t save too much” but that is putting the screws down pretty tight.
Some of the above is real life and some is an estimate for my own situation (mortgage, taxes, 401K). I’m in the $650K area for 401K savings so NOT killing it there. I’m also eligible for a $34K a year pension at 55 (I’m 53). Thanks.
Coincidentally, $24k/year about how much the Mr. Money Mustache family lives on with a paid-off mortgage. Go check out mrmoneymustache.com. I have no affiliation with the site other than being a reader of his blog.
Financial Samurai says
If I could earn what MMM makes on his site, I’d be pumped! He’s got the right formula about talking about frugality and living on less to appeal to everybody. As a result, he’s making tons of money. Ever ask him what he does with his extra income or how much he makes? You’ll be surprised. I’ve got it backwards about talking about how to make more money, which is much harder, but more fun imo.
I’m not saying someone can’t live off $24K a year. For me and others I hang out with who have similar interests (travel, hobbies, entertainment) they are spending twice that. Several of my friends have retired in the last two years and they are spending $45-$50K. Most have no mortgage.
Different strokes for sure and good for MMM for doing it on $24K. I’m guessing no cable TV, one car (maybe less), no travel outside of U.S., don’t go out to eat type of thing. I’ll check out the site. Maybe they cut their dryer sheets in half (just kidding).
The public sector employee salaries vary widely by where you live. In NY Long Island teachers and police officers all earn over $100,000.00 when they reach top pay.
Financial Samurai says
In San Francisco, our retired police chief earnings over $200,000 a year in pension money. Our current police cheap makes ~$265,000 a year. Not bad!
Not great, though. Compare that salary to your typical CEO of a similarly-sized organization, and I think you’d find it severely lacking. Of course, we all know that CEO salaries are out of control, so the police chief salary is probably a decent goal to shoot for.
Financial Samurai says
But don’t worry, Canadians have $400,000 average net worths and cheap/free health care! Can’t beat that… except for the long, cold, winters.
Don’t forget we have cheap/free healthcare now, thanks to the ACA … or do we?
Bryce @ Save and Conquer says
I did not take your poll because my wife and I have been saving 50% of our income for the past 15 years. I had also been maxing out my retirement accounts for many years before we were married. We have about equal amounts in taxable and tax sheltered accounts. We are not rich, but we are off the high side of your savings chart. We expect to have enough to comfortably retire in 9 years.