Average 401k Balances

A 401k is a valuable tool for saving for retirement, if you have access to one. About one in five adults (and about one in three workers) have a 401k. A current estimate for the average amount in a 401k is between $92,000 and $102,000. However, these numbers are pulled higher by outliers—high earners and diligent savers who have managed to save a bundle. Instead, the amount in the median 401k is about $30,000.

What’s the Average 401k

The average amount in a 401k can be estimated from data provided by some of the financial institutions, such as Fidelity and Vanguard, who hold and manage large numbers of 401k accounts. The average is pulled higher by outliers, so we've included where available the median 401k balance as well (meaning half of people have more and half have less).

401k Account Manager

401k Balances

Fidelity Average Account Balance

$91,800

Vanguard Median Account Balance

$29,603

Vanguard Average Account Balance

$102,682

The amount someone has in their 401k correlates strongly to their age, and how long they have been with their employer. That's because a person can only contribute to a given 401k while working for that employer. A typical person in their 20s can save anywhere from $4,000 to $16,000 depending on how long they've been employed and contributing from their paycheck. On the other hand, consumers who have been regularly funneling a portion of their paycheck to their 401k retirement account can accumulate an average of $224,000 in 30+ years of saving.

Years at Company

20s30s40s50s60s

0-2

$4,108$9,842$15,457$20,656$24,276

2-5

$10,695$21,872$31,764$38,533$39,323

5-10

$16,647$36,980$53,060$60,735$58,606

10-20

N/A$57,212$92,699$106,522$96,980

20-30

N/AN/A$136,761$187,425$169,473

30

N/AN/AN/A$219,196$224,287
  • Data from the Employee Benefits Research Institute/ICI Participant-Directed Retirement Plan Data Collection Project.

The average 401k balance differs from average retirement savings overall, since a 401k is just one of many different possible types of retirement accounts. A person might have retirement savings in an IRA, for example, but not have any money in a 401k. The IRA savings might have even originated in a 401k, and been rolled into the IRA after the worker left the employer.

What is a 401k?

A 401k plan, also referenced as 401(k), is a retirement savings plan sponsored by an employer.A 401k allows you to save pre-tax money for retirement, sometimes with matching contributions from your employer. The employer can even be yourself if you are a sole proprietor with no employees. In this case, you can establish an individual, or a solo 401k.

Many employers are also now offering the option of a Roth 401k which accepts your contributions after tax. Future withdrawals from a Roth 401k are also tax-free. Another upside of 401ks: many of them allow you to borrow the money you’ve put in them, and pay yourself back with interest.

401ks are classified as defined contribution accounts. This means you determine the amount of money you put into the account; the amount you will have in retirement (your benefit) will ultimately depend on your investment choices and their performance over time.401ks are just one type of tax-advantaged, defined contribution retirement account. Other kinds include 403(b)s; 457s, Thrift plans; and various types of IRAs. Eligibility for each of these depends on factors like employer offerings and income.The other type of retirement account an employer might offer is a defined benefit account. These are often called pensions. The employer pays eligible employees a pre-determined amount of money—their defined benefit, say $2,000—each month in retirement.

401ks are specific to each employer. You might have a 401k with your current employer. If you leave your job, your 401k savings can remain in your former employer’s 401k or you can move the money into an IRA (this is called a rollover). Either way, the money is always yours. Where you decide to keep it will only affect what investment options you have access to, and on what terms. Some experts recommend rolling your 401k into an IRA whenever you switch jobs. Others say to leave it in the employer’s 401k because you get more fiduciary protections there.

How Does a 401k Work?

If your employer chooses to offer a 401k, they will establish the plan, and choose the investment options in it. You must enroll in the plan and decide how much of your compensation—typically expressed as a percentage—you’d like to contribute to it. You must also select the investments into which your money will go. There generally is a default account that's called the Qualified Default Investment Alternative. If you don't direct your contribution towards a specific option from the available list, your money gets invested in this default fund.

Every time you get a paycheck, your 401k contribution will be funneled directly into the account. You will only pay your portion of Social Security and Medicare taxes (unavoidable) on the money, but it’s otherwise shielded from federal and state income taxes.

The money will remain in the account, hopefully growing at the rate of the investments you’ve chosen, until you are eligible to take it out in retirement.

Why You Should Sign Up for a 401k

If your employer offers a 401k, you should sign up for it, and deposit as much of your income as you can live without. To ensure a comfortable retirement, we recommend that you save 15% of your income every year as a general rule of thumb.

Some employers match your 401k contributions, which can get you to that 15% level faster. If your employer matches 50% of your contributions up to 6% of your income (a common structure for a 401k match), you only need to contribute 12% of your income to reach the goal of 15%. For a person earning a typical income of $50,000, here’s what that would look like.

You contribute 12%Employer Match of 3%Total Contributions of 15%

$50,000

$6,000$1,500$7,500

While the employer match is a nice bonus, you should sign up for your 401k even if your employer doesn’t chip in any money. It gets you accustomed to saving, and also to living on less than you earn—both incredibly important tactics you need use throughout your working life to set yourself up for a comfortable retirement.

Sources:

Employee Benefit Research InstituteFidelity Newsroom Vanguard Newsroom

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