How Do Your Retirement Savings Compare to the Average American's?

Saving money for retirement is one of the most important uses of your money. If you aren't putting aside cash in a 401(k) or a tax-advantaged retirement account at a brokerage firm, you are setting yourself up for disaster. When you get to retirement and discover Social Security only replaces about 40% of your pre-retirement income, you're quickly going to discover you absolutely need some investments to provide additional funds.

To help you get an idea of where you stand with retirement savings, you may want to compare your current account balance to what your fellow Americans have set aside. Here's what you need to know in order to do that.

This is how much the typical American has saved for retirement

According to the Federal Reserve, 54.3% of families hold some type of retirement account, including 401(k)s, 403(b)s, and IRAs. This is a 4% increase compared with 2019, which is great news.

However, there's not necessarily a lot of money in these accounts. The median value of retirement plans as of 2022 was $86,900, while the mean value was $334,000. The mean balance is much higher because there are some people with very substantial retirement account balances -- often in the millions -- which drives up the average amount across all plans.

The Federal Reserve also showed most of the gains in retirement account balances between 2019 and 2022 went to families with incomes in the top half of the distribution, while the mean balance of IRA account balances across the bottom of the distribution actually decreased from $66,600 in 2019 to $54,700 in 2022. For upper-middle-income families, there was an increase of more than 10%, and for those in the top 10% of earners, the mean balance of retirement accounts went up to $913,300 in 2022.

How to set your own retirement savings goals

As you can see, there's a big difference between what the typical American has saved for retirement, versus what the typical rich American has saved. And that probably comes as a surprise to absolutely no one at all.

The good news is, you do not have to be rich to save for your future, nor do you need to compete with rich people. All you need to do is make sure you are saving regularly and consistently to have the money you need to be secure as a retiree.

For most people, replacing about 10 times their final salary is a good rule of thumb when it comes to retirement. So, if you expect to be making $60,000 when you retire, you'd need $600,000 in your retirement plan by your chosen retirement age. If you plan to retire at 67, you're starting to save at 30, and you earn a 10% average annual return, this would mean you'd need to invest only around $151.49 monthly to be on target -- which may be doable for most people.

So, while it's interesting to look at what the typical American has saved, the important thing you need to do is to set your savings goal and figure out how much you need to save each month to achieve it. You can assume 10 times your salary for simplicity and use the calculator at Investor.gov to see how much to save each month to end up with a big enough sum. Then, just set up automatic payments from your checking account to your retirement plan -- or sign up for automatic 401(k) contributions at work.

If you take these two steps, you may end up with a retirement account balance much bigger than the median and average American's and can have the retirement you deserve.