Given that Social Security is at risk of cutting benefits in about a decade's time, it's more important than ever to try to set yourself up with a nice nest egg for retirement. And if you're in your mid-50s to mid-60s, it's especially important to assess your savings and make sure you're on track.
At this stage of your career, you may not have that many working years left. So it's important to make the most of them and ramp up your retirement plan contributions as needed.
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Then again, if you're on track as far as your savings go, you may not have to worry about increasing your contributions in the coming years. Instead, you may be able to coast and wrap up your career with more peace of mind.
It may help you to know what the typical saver your age has in their 401(k) plan to see how well you're doing. And to that end, Vanguard has some data you may find eye-opening.
The average 401(k) balance among near-retirees
Vanguard reports that the average 401(k) balance among Americans aged 55 to 64 is $244,750. However, the median 401(k) balance among that age group is $87,571. And when you have a median that's considerably lower than the average, it's generally an indication that the average is being skewed upward by a small subset of very large balances.
In other words, that median $87,571 is probably more representative of what the typical near-retiree is sitting on in their 401(k). And you might notice that it's also not a particularly large number.
Now one thing to keep in mind is that Vanguard's data reports on 401(k) plan balances only. It may be that some savers have outside funds in an IRA, taxable brokerage account, or other investments. Therefore, we can't use this data to assume that the typical 55- to 64-year-old has just in $87,571 in total retirement savings.
But at the same time, for many people, their 401(k) does represent the bulk of their savings. So Vanguard's numbers tell us that a lot of near-retirees are in trouble.
Even if we take the average $244,750 balance for 401(k)s, when we apply the popular 4% rule, a nest egg that size amounts to about $9,800 in annual retirement income. That's not a whole lot, even when Social Security benefits are also factored in. The average retired worker today collects about $23,000 per year in Social Security.
Of course, the average and median balances above aren't necessarily indicative of what the typical 55- to 64-year-old will retire with in total, since many people in that age group may still have quite a bit of time left in the workforce. But all told, these numbers aren't particularly encouraging for people toward the high end of that age range. A 64-year-old with limited savings today may not be able to accumulate all that much more between now and retirement unless they work well into their 70s.
What 401(k) balance should you aim for?
While you may find Vanguard's 401(k) data interesting, it's not necessarily data you should be relying on. In other words, you may be someone between the ages of 55 and 64 who has more than $244,750 saved for retirement already. But that doesn't automatically mean you're all set. And you also don't necessarily need to panic if your 401(k) balance is less than the average worker's your age if you have other retirement income sources lined up.
If your job provides a robust pension, that takes a lot of pressure off of your 401(k). Similarly, if you own a rental property that's almost mortgage-free which generates $2,500 per month in steady income, that makes a smaller 401(k) balance less problematic.
So before you get too hung up on the average 401(k) balance above, think about your personal needs and goals for retirement as well as the various income sources you expect to have access to. If you decide that your 401(k) savings need work in the coming years, by all means, do what you can to increase your contributions. But make that decision based on your own numbers -- not the average reported balance.
