You'll often hear that building savings for retirement is important since you can't plan to retire on Social Security alone. But some Americans may be falling glaringly short in that regard.
The median retirement-plan balance for Americans of all ages is a mere $65,000. That's according to the latest Federal Reserve Survey of Consumer Finances, which was able to analyze data for 2019.
To be fair, the stock market has seen some impressive gains between 2019 and present day, even accounting for a series of recent sell-offs. So there's a good chance that that $65,000 median balance actually sells savers a bit short.
That said, many Americans tapped their retirement plans during the pandemic out of necessity. While that 2019 data doesn't account for recent stock market gains, it also doesn't account for early retirement-plan withdrawals, which were allowed penalty-free under the CARES Act.
It's also worth noting that older Americans had a higher savings balance than younger ones. Savers aged 55 to 64 had a median retirement-plan balance of $134,000, which is more than twice the median balance across all age groups.
However, $134,000 isn't exactly a lot of money with which to retire. At an annual withdrawal rate of 4%, which financial experts have long recommended, that results in a mere $5,360 in annual income.
If your retirement savings could use some work, it pays to make catching up a priority. Here's how.
1. Snag your full 401(k) match
If you have access to an employer-sponsored 401(k) plan, there's a good chance you're also entitled to some type of match from your company. It pays to contribute enough to your retirement plan to claim that match in full. Not only will that result in free money, but it's money you'll have the option to invest for added growth.
2. Look outside of an IRA
If you don't have a 401(k) plan and are stuck with an IRA, you may be behind on savings due to the limited $6,000 annual contribution ($7,000 if you're 50 or older). If that's the case, think about saving for retirement outside of an IRA alone.
A health savings account (HSA) actually serves as a solid retirement savings tool. Even though their funds are earmarked for retirement, once you turn 65, you can take an HSA withdrawal for any purpose without being penalized. Plus, HSAs offer a world of tax benefits -- more perks than 401(k)s and IRAs, in fact.
3. Invest your savings aggressively
If you're unhappy with your retirement-plan balance, you may not be investing aggressively enough. Although loading up on stocks carries risk, it's also a good way to enjoy larger gains in your IRA or 401(k).
If you're not comfortable choosing individual stocks for retirement, which IRAs let you do, you can opt to put money into broad market index funds, instead. Index funds are also a solid bet for your 401(k), since you typically can't invest in individual stocks when you have an employer plan.
Index funds are passively managed, and their goal is to match the performance of the benchmarks they're tied to. They charge very low fees and are an easy way to diversify without putting in a lot of effort.
What's your savings goal?
Maybe your goal is to amass a $500,000 nest egg for retirement. Or perhaps you're aiming for more like $1 million. Either way, chances are that a $65,000 savings balance won't cut it. If that's what you're looking at now, it pays to take steps to boost that balance -- and increase your chances of being able to enjoy ample financial security once your time in the workforce comes to an end.