Most Americans have the majority of their retirement savings in their company 401(k).
There's a good reason for that. Not only do 401(k)s offer generous contribution limits, employers will often match contributions up to a certain amount as an employee benefit. That leads many people to prioritize their 401(k) for retirement savings.
Even so, many folks reach retirement age well short of their savings goals. That's reflected in the average 401(k) balance for retirees age 65 and older. But if you're savvy, you can come out well above average while making the most of any savings you're able to accumulate.
Here's the average 401(k) balance for retirees age 65 and older
The average 401(k) balance for account holders age 65 and older was $232,710 as of the end of 2022, according to data from Vanguard. That's well short of most people's retirement savings goals, but even that number may be overstating the reality for the typical retiree. The median account balance for people age 65 and up was just $70,620.
Importantly, the average retiree likely has savings in other accounts. It usually makes sense to roll over your 401(k) to an IRA when you leave your employer to reduce fees and open up more investment options. Additionally, many people save for retirement in a regular brokerage account as well.
Moreover, once you retire, you start to draw down your account. That can reduce your retirement savings, and the impact can be quite noticeable in years when the financial markets decline, like in 2022. Overall, however, given a conservative withdrawal strategy, you can often expect your account value to increase despite regular withdrawals.
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That said, the median balance across all retirement accounts for people aged 65 to 74 is only $200,000, according to data from the Federal Reserve. Those people also have about $160,000 in stock holdings outside of retirement accounts. Put together, that's still well short of most people's retirement needs.
Even when you add in the average monthly Social Security payment of $1,907, most folks will struggle to live the life they envisioned for retirement with just median account balances.
Make the most of what's available to you
If you find your 401(k) account coming up short as you approach retirement age, there's only so much you can do. If you can work longer and save more, that's a great option, but putting off retirement is unappealing and it's not a possibility for some.
The next best thing you can do is make sure you use a strategic withdrawal strategy from your 401(k) to minimize taxes. Delaying the start of Social Security for a year or two can help put you in a position where you can significantly lower your overall tax bill later in retirement. It may be worth consulting with a financial advisor to see what strategies are available for your situation.
If you still have a lot of time before you reach retirement, it's worth examining how much you're saving. Work backward from your goal using reasonable return expectations to see how much you should be saving every month. If you're not getting the employer match on your 401(k), you should be contributing at least that much to start. Increasing your contribution rate with every raise is a great strategy to boost your savings.
If you want to retire with an above-average balance in your 401(k), you need to do things that are above average during your career. Just a few tweaks can help you do that, and smart strategies in retirement can make more out of the money you do save.
