Comparing your retirement nest egg to another investor's savings isn't always a meaningful -- or even fair -- exercise. Different people earn and save their money at different rates. And not everybody needs the same amount of retirement income once they start living off their savings.
Still, a comparative benchmark can confirm that you're on track or perhaps indicate you could be doing more.
To this end, here's a look at the average 401(k) balance for Americans between the ages of 55 and 64. That's an important age bracket to study. It's not yet at the very end of your opportunity to sock money away. However, in most cases, it's getting close to that point in time.
Average 401(k) balance for 55 to 64 year olds
Mutual fund company Vanguard crunches the numbers every year using data from its own clients. Other brokerage firms and data sources might come up with slightly different figures, but since it's one of the nation's biggest retirement plan service providers, Vanguard can provide useful data regarding where the average U.S. investor stands. As of the end of 2022, the average 55 to 64-year-old's 401(k) is worth $207,874.
Shocked? Maybe a little discouraged that yours isn't anywhere near that amount? If so, don't be. The number is a bit misleading. As I noted recently, a relatively small number of individuals' 401(k) accounts have been boosted by unusually fortunate circumstances. A far more meaningful figure is Vanguard's median -- or 50th percentile -- account value. That's $71,168.
Just bear in mind that even this figure comes with an important footnote. That is, the underlying data can still widely vary. Many workers are only able to start saving substantial amounts of money when they're in their 50s, often when children are out of the house and when incomes finally start to be markedly greater than living expenses. The typical 64-year-old is just wrapping up a very fruitful 10-year stretch.
Nevertheless, you've now got a ballpark comparison for yourself.
Next steps
If you're doing better than average, congratulations! You probably don't want to change much (if anything) about your savings plan. The only thing you might want to consider is this -- if you're closer to 55 years of age than 64, you likely still have 10 or more years of wages to earn before retirement. Don't undermine your eventual nest egg by underexposing yourself to growth and overexposing your portfolio to safer havens like bonds. Ten years is a long time! It's possible to squeeze a couple of bull markets into a single decade.
If your retirement savings are lagging those of your peers, though, there's a handful of things you'll want to think about doing.
First and foremost, don't panic! Panicking can prompt you to make quick changes that end up doing more harm than good. Rather, take at least a few days before starting to make changes to your portfolio and your savings regimen.
What's the one thing you absolutely don't want to do immediately? Suddenly swap out everything you own for growth stocks. You may want to replace everything you own, but you'll still want to think over your entry and exit points carefully.
Image source: Getty Images.
Second, take a good, close look at your spending. Is there anything you can realistically cut out? You might be surprised to find out how much you can trim your budget when you're really trying.
One area where many consumers are shocked to learn how much they spend once they start looking at the numbers is restaurant dining. Another area ripe for savings? Subscriptions to streaming services that are rarely, if ever, used. Credit card and banking fees are yet another cost that can be minimized with just a little effort.
Wherever it comes from, even a few hundred dollars per month in additional savings flowing to your 401(k) can add up to tens of thousands of dollars over a 10-year period.
Last but not least, if your retirement savings aren't yet what you'd like them to be, you may want to make sure your portfolio is optimized for the amount of growth you want to achieve relative to the amount of risk you're willing to take.
That's admittedly easier said than done. Most 401(k) plans only offer a limited number of mutual funds to choose from. Finding the right mix among equity, fixed income, commodity, and international mutual funds is possible though. Make an allocation plan that's right for you and put it into action.
In this vein, know that the default purchase for newly contributed money in a 401(k) is a low-paying money market fund. You'll probably have to instruct your plan's service provider as to how you want your contributions put to work (and automate your choice going forward).
Don't forget to look beyond your 401(k)
With all of that said, although 401(k) plans are great tax-deferring vehicles to help you save for retirement, you don't have to stop there. You can also always fund an individual retirement account that has nothing to do with your company-sponsored retirement plan.
In fact, while many people's 401(k) accounts make up the single biggest portion of their retirement nest egg, even above-average 401(k) balances may not be enough to maintain their standard of living once they quit their jobs for good. It's likely to take a combination of 401(k) savings, Social Security income, and self-directed IRA savings to fully cover their living expenses in retirement.
