I won't keep you in suspense: The average person in the 55-to-64 age group, which I'd call "pre-retirees," has $244,750 in their 401(k), according to the latest How America Saves report by Vanguard.
However, there's more to it than this overall average indicates. For one thing, the median 401(k) balance in this age group is $87,571, a much lower amount. I'll spare you the math lesson, but this means that half of all 401(k) accounts have more than $87,571, and half have less.
When the median is far less than the average, it indicates that the average is being skewed by a relatively small number of high-balance accounts.
It's also worth noting that this is just how much people have in their Vanguard 401(k) accounts. If they have other retirement savings -- such as an IRA or a 401(k) from a former employer -- it isn't included here.
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Does the average pre-retiree have enough?
A general rule of thumb used by financial planners is that the average American needs about 80% of their pre-retirement income after they retire. Social Security is designed to replace about 40% of the average person's income, although it certainly can be less.
Financial planners often use the 4% rule of retirement, which says that you can safely withdraw 4% of your savings during your first year of retirement and adjust for inflation in subsequent years. Based on the average 401(k) balance of $244,750, this translates to a safe withdrawal rate of $9,790 per year for the average Vanguard 401(k) participant.
Even when combined with Social Security, this might not be enough. To be fair, most people in the 55-64 age group are at least a few years from retiring and still have some time to save and let their money grow. But if you're in this age group and cannot reasonably withdraw enough to cover your living expenses, it could be a smart idea to save more aggressively between now and retirement.
