The average American has a little over $148,000 in retirement savings, according to the latest edition of Vanguard's How America Saves report. But this figure is a bit skewed by higher-balance accounts. In fact, only three in 10 defined contribution plan accounts held at Vanguard have a balance of more than $100,000.
On the other hand, the median balance of a Vanguard retirement account, which means that half of accounts have more and half have less, is $38,176. Of course, this includes some accounts where the balance should be low, such as 401(k) accounts owned by employees who recently started working, or old accounts from former employees who only stayed at their job for a few years. But this is still an alarmingly low figure.
Saving for retirement doesn't require extraordinary effort
You might be surprised how effectively you can build retirement savings without saving money aggressively or taking outsized risks with individual stocks.
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As an example, let's say that 20 years ago, you invested $10,000 in a low-cost S&P 500 index fund, like the one that Vanguard offers. It is available in both ETF or mutual fund form, as the Vanguard S&P 500 ETF (VOO 1.53%) or the Vanguard S&P 500 Index Fund Admiral Shares (VFIAX 0.08%).
Now, this investment would have taken place in March 2006. That's not long before the financial crisis sent the S&P 500 plunging by more than 55% from its peak. And the past 20 years also include the COVID-19 pandemic, the 2022 bear market, and several other turbulent periods.
With all of that in mind, you might be surprised to learn that a $10,000 investment in a Vanguard S&P 500 index fund 20 years ago would be worth nearly $78,000 today. As we said earlier, half of all Vanguard retirement accounts are worth $38,176 or less.
VFIAX Total Return Level data by YCharts
One key point to keep in mind is that this is how you would have done if you had just made a one-time $10,000 investment. Imagine how much you could have if you added to it over time. For example, if you had started with a $10,000 investment 20 years ago and added $5,000 per year thereafter, you'd have more than $513,000 today. As legendary investor Warren Buffett has said, it isn't necessary to do extraordinary things to get extraordinary results.
