Here's How Much the Average 40 Year Old Has in Their 401(k)

Americans' 401(k) balances grew last year, likely because the stock market gained more than 24% in 2023. But many people also increased contributions to their accounts, pushing their balances higher. That rise now means Americans in their 40s have an average of $100,300 in their 401(k)s.

With inflation still persistent, it can be difficult for many people to find extra money to put toward their retirement savings. If you're falling behind with your own savings goals, there are a few things you can do to increase your contributions.

1. Put side hustle money into your retirement account

If you're among the 39% of Americans with a side hustle, it may be a good idea to put that extra cash to work in your 401(k).

The average monthly earnings for side gigs is about $473, and the annual average rate of return for 401(k) is between 5% to 8%. If you put that extra money into your 401(k) for five years and earn an 8% return, you'd have an additional $33,298 in your retirement account over that period.

If you don't have a side hustle, you may want to consider starting one. There are many excellent side gig platforms that can help you use your existing skills.

2. Sign up for your employer's matching program

Many employers offer matching 401(k) contributions on a dollar-for-dollar basis, up to a certain percentage of your salary. This is one of the fastest ways to boost your 401(k) balance and has the potential to be one of the most lucrative.

For example, some companies offer matching contributions up to 6% of your salary. So, let's say you earn $75,000 and contribute 6% of your salary throughout the year, putting $4,500 into your 401(k). If your employer has a 6% matching program, it would add $4,500 in contributions for the year as well, doubling your contribution amount.

With a deal like that, you're leaving money on the table if you haven't signed up for your employer's matching program.

3. Put raises and windfalls into your 401(k)

Designating a specific percentage of your salary to 401(k) contributions ensures that your contributions will increase with each raise. But it's also a good idea to put any unexpected windfalls into the account. If you get a bonus from work or a large gift from your family, putting some of that money into your 401(k) adds up fast.

Let's assume you have $20,000 in your 401(k), which is earning an average annual rate of return of 8%. If you didn't make any other monthly contributions to your account, you'd have an estimated $93,219 in 20 years.

But if you added a one-time additional investment account contribution of $2,000 to your initial $20,000 and let it grow over 20 years, you'd end up with $102,541.

Bottom line

Whether your 401(k) balance is ahead or behind that of other people in your age group doesn't really matter. What's important is that you contribute the right amount to your retirement goals.

A good rule of thumb is to aim to save 15% of your annual salary for retirement each year. If you're not quite there yet, find a percentage you can afford and then automate those contributions so you're consistently saving.