A 401(k) is one of the most valuable assets most people will ever own. By the time you retire, it could house hundreds of thousands or even millions of dollars that you'll need to cover your expenses for the rest of your life. To get there, you first need to defer some of your paychecks today -- and therein lies the challenge.
Many workers struggle to save as much as they'd like and worry they're not saving enough. You might not be as far behind others as you think, though. Below, we'll look at the average and median 401(k) balances today and how you can beat them.
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How much does the average worker have in their 401(k)?
The average 401(k) balance in 2023, according to Vanguard's How America Saves report, was $134,128. But this paints a somewhat inaccurate picture of how the ordinary worker is doing. Averages are easily skewed by a few high earners.
Looking at median data gives a better sense of how the typical worker is doing. The survey found that the median 401(k) balance was much lower, at $35,286 in 2023. But whether this is good or bad depends on your age. It might be alarming for someone in their 60s, but it could be excellent for someone in their early 20s.
Per the report, the median age of the participants was 43 and their median income was $82,000 annually. One popular retirement savings rule of thumb says you should have three times your salary saved by age 40. The median 401(k) balance reported in the survey is well behind this metric, which suggests that many of these workers are probably behind on savings.
Even more alarming is the fact that roughly one in five aren't contributing any money to their 401(k)s at all, according to the report. The median annual income for non-participants was just $39,000, so it's likely that many of these workers simply cannot afford to defer any cash to their 401(k)s right now. But that will only make their task more challenging later, as they'll have to either save more in their later years or delay retirement to give themselves more time to save.
How to increase your retirement savings
When you're behind on retirement savings , the obvious solution is to increase your contributions. But that's not always easy to do. Start with whatever you're able to comfortably set aside, even if it's only a few dollars per pay period. If you qualify for a 401(k) match, do your best to claim this every year. It could effectively double your annual 401(k) contributions if you qualify for a dollar-for-dollar match.
Then, try to increase your contributions whenever you get a raise, or by 1% annually. It sounds intimidating, but it comes out to $50 more per month for those earning $60,000 per year.
You can also save outside of a 401(k) if that's more convenient for you. IRAs typically give you more freedom to invest how you like, and this can help reduce your fees. They also allow for lump-sum contributions, whereas 401(k)s only accept paycheck deferrals. So an IRA is a better option if you only have extra cash sporadically.
Even if you can only make small changes now, they could add up to significantly more savings after they've been invested for a while. Do the best you can and check in with yourself at least annually to see if there are any ways you can free up additional cash for retirement savings.
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