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The Average 401k Balance And Why It’s Too Low

Updated: 06/02/2021 by Financial Samurai 82 Comments

Beef Wellington Medium Rare 401K

According to Fidelity, one of the largest 401k providers in the world with over 12 million accounts, the average 401k balance is now around $120,000 as of 2Q2021.

Among employees participating in a 401k for at least 10 years, the average balance hit $251,600, up 12% from a year ago. Separately, Vanguard reported that the average 401k balance has now shot up to $120,650. For workers 55 years of age or older, the average balance is $163,300.

In 13 not so short years, we’ve finally breached the peak average balance of $69,000 in 2007 and are now at record highs. It’s not so hard to believe since the Dow Jones and S&P 500 are also at record highs. At the depths of the crisis in 2008, the average 401k balance plummeted 25% to around $50,000.

401k Participation Rate Is High

401k participation levels hover at a respectable 71% for those making $40,000-$60,000 a year. Participating levels are therefore clearly much higher for those making more, but the exact number is unclear. For those making $20,000 to $40,000 a year, the participation level drops to just 53%, which is understandable.

Let’s say the average age surveyed is between 30-35, you can now see how absolutely pathetic these balances are if you are actually depending on your 401K to retire. 

You need to have the mindset of always maxing out your 401k every single year while saving at least 20% of your income after full contribution. There really is no other guaranteed way to retire comfortably if you aren’t saving a good amount. The power is all in your hands!

Saving Your 401k Is A Must For Retirement

It may seem daunting to save $19,500 (2021 max) pre-tax dollars a year if you’re not making more than $60,000 a year. But trust me when I tell you it’s a must. If you spread out your contributions evenly over 12 months, you will be contributing $$1,625 each month pre-tax.

Hence, what’s really coming out of your paycheck is not $1,625 each month, it’s more like $550 every two weeks or $1,100 every month thanks to not having to pay taxes. You can do it. Millions of people survive on much less.

I recommend not stopping at the company’s 401k match, which often equals 3% of your base salary or $3,000, whichever is larger. I’ve heard many examples of a much higher contribution, all the way to a full 100% contribution match as well. Whatever the case may be, you need to do your best to max it out.

After 10 years, you’ll have at least $195,000 given it is very rare that one loses money in a balanced equities and bond portfolio in any 10 year stretch. Furthermore, I haven’t included any of the company matching or profit-sharing.

Doesn’t at least $195,000 in your 401(k) sound good when you are 32 (assuming you graduated at 22), and $350,000 sound good at 42? The fact of the matter is, you’re more likely to have $200,000+ and $500,000+ if you keep maxing out your 401k based on average 4% returns, company matching, and profit sharing.

By 50 an 60 years old when you retire, you are well on your way to a million dollar 401k balance or more. However, the sad thing is that $1,000,000 in today’s dollars certainly buys much less than $1,000,000 dollars 10, 20, and 30 years in the future. Hence, your 401k cannot be depended on. It can only be considered a supplement during your retirement.

Recommended 401k Amounts By Age

Here’s is my recommended 401(k) savings chart by age or work experience:

401k savings targets by age - The Average 401k Balance And Why It's Too Low

When The 401k Gets Big, It Starts Working For You

Once you have a sizable portfolio, your contributions will start making less of a difference. For example, a reasonable 4% return on a $500,000 portfolio is $20,000. If you made 20%, that’s a nice $100,000 return while you kicked back doing little.

It’s all about building your nut as large as possible so that your money just starts doing all the work for you. Some of you gunslingers might laugh at a 4% return, but when you have millions of dollars in the bank or in your portfolio yielding a risk free 4%, it adds up!

You become more risk adverse as you get older. It’s partly because you might have more liabilities and dependents and don’t want to blow yourself up. But, it’s also because once you have a $500,000 portfolio, it will STILL make you sick to your stomach if you lose 10% of it. This is even though you are much wealthier than when you were first starting out  Some say 10% is 10%, but trust me, when I saw my portfolios go down by $100,000+ during the downturn, it wasn’t a pleasant feeling.

Here is the reality of how much people have in their 401ks today:

Average 401k Amounts By Age 2014

Manage Your 401k Portfolio Wisely

At some point in 2010, I noticed that finally, I had breached my 2007 highs. I haven’t bothered to calculate my portfolio’s real rate of return given that it is quite messy with the company match and profit sharing plan. All I really care about is how much is in the darn portfolio, and I’m pleased to say it is about 25% above its previous peak. Here’s how often you should re-balance your 401k.

There’s no magic involved in the portfolio at all. The most important thing is an asset allocation between equities, bonds, and cash which you are comfortable with, and that you keep on maxing it out! I like the idea of keeping roughly your age as a percentage in bonds, and the rest in equities.

Couple your 401(k) with your hefty after-tax investment account, you will be good to go when it comes time to no longer work.

Recommendation To Build Wealth

The best way to become financially independent and protect yourself is to get a handle on your finances by signing up with Personal Capital. They are a free online platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing. I can also see how much I’m spending every month.

The best tool is their 401k Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying! They also recently launched the best Retirement Planning Calculator around, using your real data to run thousands of algorithms to see what your probability is for retirement success. 

Once you register, simply click the Advisor Tolls and Investing tab on the top right and then click Retirement Planner. There’s no better free tool online to help you track your net worth, minimize investment expenses, and manage your wealth. Why gamble with your future?

Retirement Planner Personal Capital
Personal Capital’s award-winning retirement planning calculator. Are you on track?

About the Author:

Sam began investing his own money ever since he opened an online brokerage account online in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at Goldman Sachs and Credit Suisse Group. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered.

In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income largely thanks to investments in real estate crowdfunding. He spends time playing tennis, hanging out with family, consulting for leading fintech companies, and writing online to help others achieve financial freedom.

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Filed Under: Retirement

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse. In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Order a hardcopy of my new WSJ bestselling book, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. Not only will you build more wealth by reading my book, you’ll also make better choices when faced with some of life’s biggest decisions.

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Comments

  1. Joe says

    September 3, 2014 at 8:04 pm

    There’s a good chance you’ll realize a compound annual growth rate of 8%. But there’s a much better chance you’ll get divorced, and you wife will take 50% of the balance:)

    Reply
    • later starter says

      February 18, 2015 at 9:31 am

      These days the husband would have rights to 50% of hers as the case may be. Or that was true of some people I’ve known.

      Reply
  2. NYCBizWriter says

    February 3, 2014 at 3:48 pm

    401(k)s are the biggest scam to be foisted on the American public since snake oil. What the money managers won’t tell you: If you’re middle class, it is mathematically impossible to “save” enough to actually retire. Period. Unless your idea of “retirement” is moving into a homeless shelter and eating cat food. For a $50K/year worker to “retire” on half of his income (what he can barely afford to live on when he’s working), he’ll need TWO MILLION DOLLARS in his IRA. In other words, he has to work until his 150th birthday. But the money-grubbing “financial advisors” keep up the 401(k) fairy tale, scaring everyone into handing them 15% of their pathetic paychecks (and charging their hefty fees for the privilege).

    Reply
  3. thepotatohead says

    May 15, 2013 at 7:40 pm

    25 yrs old, 4th yr of working. Stupidly had just been contributing 5% to my 401k to get the company match. Bumped that up to 10% last year. Hoping to bump that up to the $17500 mark this year, but it’ll be tight. Need to do it though, only way to ensure I have a decent retirement.

    Reply
  4. Maths says

    February 12, 2013 at 7:25 pm

    @ Matt
    If you are saving 1k a month, then you will reach your 50K goal in 4 years, 2 months – assuming zero interest (which is accurate today). So your planning for 5-8 years is actually over-funding the down-payment fund. Instead, you could save about $850 a month, bump up your 401k contributions with the difference and you would still reach 50K within 5 years. (850 * 60 months = 51,000) Also, make sure you understand the vesting period on your employer match. Younger workers, who might be inclined to switch jobs, are shocked when significant portions of the match are held back because of vesting schedules.

    Reply
  5. Joe says

    February 11, 2013 at 1:11 pm

    I contribute to both a roth 401k and a traditional 401k. I contribute 6% to each and my employer matches 50% of both. When I look online my account has 1 balance. So it appears that my roth and regular 401k are combined into one acccount balance. How does this work with taxes when I go to take them out? Or are they kept seperate behind the scenes? Thanks!

    Reply
    • Dan says

      April 6, 2013 at 2:37 pm

      They are kept separate behind the scenes. With my Fidelity account, I can see my balance broken out by “source”, it sometimes shows as just a code, but each code corresponds with a contribution type. If I remember correctly, my company’s plan has a total of 15 or so different source codes ranging, from roth contribution, company match, catch up contribution, roth roll over, etc.

      Reply
  6. Matt says

    January 2, 2013 at 2:00 pm

    I am 23 and have been working for just over 4 months. I currently contribute 10% and get an employer match of 7%, so 17% between the two. Currently I have 85% allocated in stocks and 15% in bonds, which i will probably keep it at till 30 barring any big market fluctuations. I would max out my 401k but am trying to put away 1k a month in savings hoping to build a 50k nest egg for a down payment on a home within 5-8 years. I’m trying to decide between investing my savings in riskier stocks that trade for under $5, or for bluechip stocks. Obviously more risk, more ‘potential’ reward, but was wondering if anyone has any input on to which I should choose. I am a gambler and young and have no debt of any kind, so I can take a little more risk than a lot.

    Reply
  7. JG says

    December 9, 2012 at 6:16 pm

    SO my wife and I are 59 (her) and I’m 58. Collectively we have 1Mil in our work 401K’s (each over 500K). We have 280K in cash, 30K in US Savings Bonds, 150K in a Joint Tenant Act. My wife has a Roll over IRA with 40k, and and a Roth with 32K, I have a Roth with 32K. I’ll have a pension when I retire (plan is age 61 or 62). She has a Cash Value Pension worth 130K.

    She doesn’t think we have enough for us to retire at 62. Thoughts?

    Reply
    • Financial Samurai says

      December 9, 2012 at 6:54 pm

      How are your income producing assets? $1.4 million is a nice nut, but at a 3% annual return that’s $42,000 a year plus social security and whatever else. Is that enough?

      Reply
  8. Tim says

    December 6, 2012 at 5:12 am

    Keep in mind this number ($72,000) is for the average 401(k) customer at Fidelity only. It fails to reflect the millions of Americans who have literally nothing in retirement savings. The Employee Benefit Research Institute claims there are only 50 million 401(k) accounts out there period. If we averaged them in we would probably see the number drop significantly. Pretty sad.

    I’ve only got $40k (31 yrs.) in, time for some catch-up to Fidelity’s average.

    Reply
    • Financial Samurai says

      December 6, 2012 at 6:52 am

      Tim – Have you done the calculations on how you plan to survive in retirement if you plan to go at your pace? I think Fidelity’s numbers are TOO LOW. It is a large enough sample set to be statistically significant.

      Read:

      How Much Should One Have In Their 401K At Different Ages

      How Much Savings Should I Have Accumulated By Age? posed on 12/4/12

      You need to save more, unless you want to work FOREVER.

      Reply
  9. middle class says

    December 1, 2012 at 5:14 am

    401k’s are failing people because of unstable markets. Look at the major crashes over the last decade or so. The Tech bubble, 2008 financial crash etc. I have saved for quite sometime and not borrowed off my 401k and have always contributed the maximum and I am slightly above the minimum for my age range. Thank God I have a pension to supplement it, although that was reduced by my company selling out about 13 years ago. They say people near retirement are woefully short in their 401k’s when they retire. They will lead a meager life in retirement, run out of money and live with their kids. I agree with the guy who says $1,000,000 in your 401k at retirement is really not that much.

    Reply
  10. InvestJack says

    June 29, 2012 at 12:16 pm

    “By 50 an 60 years old when you retire, you are well on your way to a million dollar 401(k) balance or more. However, the sad thing is that $1,000,000 in today’s dollars certainly buys much less than $1,000,000 dollars 10, 20, and 30 years in the future. Hence, your 401(k) cannot be depended on. It can only be considered a supplement during your retirement.”

    Your calculations are wrong, your contributions would inflate over time too, by age 50 an 60 years old your 401K would be about 2.5 Mill

    Reply
  11. Be Careful says

    March 21, 2012 at 7:53 pm

    401k is not as good as advertised. Big sacrifice while fund managers earn large fees from your savings and sacrifices. Start with what you truly need for retirement. Stop listening to the Social Security scare. Savings, CD, US treasuries. Enjoy life while you can. Rather spend now then at 75 to 80. Again do the math.

    Reply
    • Financial Samurai says

      March 21, 2012 at 8:06 pm

      Sounds like you are making excuses for why you aren’t saving.

      Maybe this article will help and inspire you.

      Reply
  12. Eric says

    February 2, 2012 at 9:08 am

    So, I have one question. How does fidelity know what a person’s total 401(k) balance is? I’ve worked for 14 years now after college and have a 401(k) with my old employer and another with my current employer.

    If my second one were with Fidelity, would they report me as only having 50k balance when my total is in excess of $130k?

    Reply
    • Financial Samurai says

      February 2, 2012 at 9:44 am

      With a sample set in the millions? I’m happy to believe in ther 70k Estimate.

      Reply
  13. Curious says

    January 14, 2012 at 11:17 am

    I’m 25 and just started my 401k last summer. I’m currently making $46,000 salary and contributing 15%. My company matches $0.50 on the dollar up to 10%, offers a pension plan (ive got a while but its a nice thing to supplement the 401k), and I currently have $4,000 in my 401k. I cannot afford to contribute any more than 15% at the moment. Should I start contributing the max as soon as I can reasonably afford it and continue to manage my account myself or should I select a model and let it take care of itself?

    Reply
    • Financial Samurai says

      January 14, 2012 at 1:13 pm

      Are you talking about retirement target dated funds? If so, not a bad idea.

      Please read this suggested savings rate if not yet:

      Reply
    • Financial Samurai says

      January 14, 2012 at 3:49 pm

      Depends what model you are discussing. One of those retirement target date funds that asset allocates for you? Not a bad idea.

      If you haven’t read this post, I recommend following the suggested savings rate:

      Reply
  14. Money Reasons says

    January 3, 2012 at 2:47 pm

    I’m up but not by enough. In 2009, instead of taking my money out (wish I had done that in 2007), I increased my contribution percentage amount. It made me nervous, but I did it anyway, so I’m doing quite well right now :)

    I still need to rebalance into a more acceptable risk model though.

    Reply
    • Mike says

      January 3, 2012 at 11:49 pm

      Unless you’re Nostradamus. Buy and hold works.

      Reply
  15. Financial Samurai says

    January 3, 2012 at 2:47 pm

    In other words, the average is too high or too low in your opinion?

    Reply
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  1. Career Advice: If You Fake It, You Will Probably Not Make It | Financial Samurai says:
    March 2, 2015 at 7:00 am

    […] 3) Large companies have more infrastructure to train you. One of the best things about starting off my career at a large institution was the training. I got to go to class to pass my Series 7 and 63 tests. I got to take courses in leadership, accounting, finance, and communication to develop my skills. My next employer paid for my MBA for three years at Berkeley. Meanwhile, I was able to get foreign language training in Mandarin for a year as well, all paid for by my employer. When you’re at a small company, all you’ll get is perhaps some free food and drinks to keep you in the office longer. Many smaller companies don’t even provide 401k matches or profit sharing. […]

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