Your retirement savings are an incredibly important part of your retirement plan.
It is often the only type of your retirement income that you can directly control. While your fixed income (ie Social Security, pension etc) is important as well, it is often pretty fixed once it starts.
Your retirement investments offer flexibility in how you invest your money as well as when and how you spend it.
And because we are all curious, we all want to know how our retirement savings stacks up to the average. Here are average 401k balances by age to compare.
Average 401k Balance by Age
| Age | Average Contribution Rate | Average Balance |
| 20-29 | 7% | $10,500 |
| 30-39 | 8% | $38,400 |
| 40-49 | 8% | $93,400 |
| 50-59 | 10% | $160,000 |
| 60-69 | 11% | $182,100 |
| 70-79 | 12% | $171,400 |
| All Ages | 9% | $95,600 |
Source: https://communications.fidelity.com/wi/savings-stack-up/
So how do you compare? Have you saved more or less than others your age in the private sector? Is your contribution rate higher or lower than the average?
And while looking at averages can be interesting, we have to remember that the average does not always tell the full story.
For example, let’s say there are 5 employees with the following 401k balances:
Employee 1: $1,000,000
Employee 2: $10,000
Employee 3: $10,000
Employee 4: $10,000
Employee 5: $10,000
The average for this group would be $208,000 but this average isn’t representative of actual balances. And in real life this sort of thing happens all the time. Oftentimes, the super high and low balances will skew averages in either direction.
How Much Should I Have in My 401k/IRA?
This is a great question and one that we should all be asking.
There are numerous opinions to this question but here is what Fidelity thinks.
| Age | Multiple of Salary Saved |
| 30 | 1x |
| 40 | 3x |
| 50 | 6x |
| 60 | 8x |
| 67 | 10x |
So if your salary stayed at 50k and you followed Fidelity’s advice to a t then you would save the following throughout your life.
| Age | $ Saved |
| 30 | $50,000 |
| 40 | $150,000 |
| 50 | $300,000 |
| 60 | $400,000 |
| 67 | $500,000 |
But if you have read my previous articles then you know that I believe that generic rules of thumb can be helpful but certainly should not be the end of the conversation.
For example, if you don’t have the 500k (per the above example) saved by 67 does that mean that you can’t retire? Not at all.
It completely depends on what other income sources you have and how much you want to spend in retirement.
Have seen millionaires not have enough to retire while others retired with just a few hundred thousand dollars. It all comes down to how you manage your money and how you spend it in retirement.
If you want to spend $20,000/month in retirement then you will certainly have different needs from someone who wants to spend $3,000/month.
The 4% Rule
A great place to start when thinking about retirement savings is the 4% rule.
A simplified version of the 4% rules say that if you spend 4% of your initial retirement savings balance every year then the odds of your running out of money is small.
By following this rule, that would mean that a portfolio of $500,000 would provide you with $20,000 (4%) worth of income every year.
The 4% rule does have more to it but in the interest of keeping this short, I let you google it if you want more information.
Conclusion
But again, there is no perfect rule of thumb that will make sense for everyone. Regardless of how you compare to the average, you will want to run your own retirement numbers to get a feel for where you stand.