The number is respectably big, but it’s still not enough of a nest egg to fully fund a comfortable retirement for most people.
Generally speaking, you would be wise to take any broad, statistical data about investors with a grain of salt. There’s always more to the story. Oftentimes, that “more” is simply that there’s a wide disparity in the numbers that make up a collective average, making it less meaningful information.
On the flip side, though, sometimes it’s also helpful to know where you stand compared to that baseline.
With that context, here’s a look at the average 401(k) balance for people age 65 or older … a point in their lives when retirement is near, if not already underway.
The average 401(k) balance for retirees age 65 and older
The data comes from mutual fund giant and retirement plan manager Vanguard. In its 2023 “How America Saves” report, Vanguard says the average balance for its work-based retirement accounts for clients age 65 and up currently stands at $232,710. Not bad.
OK, it isn’t exactly a life-changing sum of money; you could expect this amount of savings to generate around $1,000 worth of dividend and interest payments every month. That’s helpful but certainly not enough by itself for most retirees to live on these days.
As a supplement to pensions, Social Security income, and other investments, though, this additional $12,000 worth of yearly cash flow could be the difference between worrying and not worrying about money.
There’s an important footnote to add here, however. That is, the average is skewed upward by a small number of 401(k) millionaires. Vanguard goes on to point out the median retirement account balance — the midpoint of Vanguard’s data — for this 65 and older cohort is a much more modest $70,620. Put another way, half of retirees’ work-based retirement accounts are worth less than $70,620.
This information could be either encouraging or discouraging, maybe even a little of both. Your retirement savings may be above the median figure or even better than the mathematical average. Either way, the amount you’ve saved up still may not be enough to fund the sort of retirement you’ve dreamed of. If you fear that’s you, there are still some steps you can take to close the gap.
How to beat the average
It’s agonizingly obvious that if you want a bigger-than-average nest egg when you retire, you must save more money than the average while building your retirement fund. Nevertheless, it’s better to err on the side of caution and point out this reality.
But how much more? It depends. But here’s some perspective: Presuming you’re invested in stocks and match the S&P 500‘s average yearly return of 10%, socking away $500 per month every month for 30 years will push you over the $1 million mark.
If you don’t have 30 years or an extra $500 per month to work with, though, putting $300 every month to work in the market for 20 years will put you in the ballpark of $230,000. Between these two scenarios, investing $400 in the market every month for 25 years should result in a portfolio worth approximately $530,000.
In this same vein, although you may be limited as to how much of your income you can contribute to a 401(k) plan, you can always also contribute to your own individual retirement account (IRA) outside of a workplace plan. This year’s IRA contribution limit is $7,000 (or $8,000 if you’re over the age of 50). Just know there are rules about what sort of IRA you can contribute to in any given year and whether or not those contributions are tax-deductible.
But if you’re close to age 65 or older and don’t have a meaningful amount of time left to save, you can still do some things to improve your situation.
And yes, delaying retirement is one of those choices. It may not be ideal, but it’s one of the most powerful options you have since you give your retirement account more time to grow. Waiting to claim Social Security benefits can also boost them by quite a bit — just don’t forget to claim by the time you turn 70 when your benefits max out.
More than anything, though, you should do the one thing most investors never really do as well or as often as they should. That’s grabbing a pencil, some paper, and a calculator and doing some serious financial number-crunching. This might be an uncomfortable exercise at first, simply because it forces you to accept some tough financial truths you’d rather ignore. But it’s also liberating since it often serves as the beginning of a viable spending and savings plan. The more detailed this plan is, the better.
Focus on you … not them
That last tip underscores the irony of spending time thinking about other investors’ situations rather than focusing on yours. That is, while your retirement account may be bigger or smaller than the average or median, it doesn’t really matter in the end. Your ultimate goal is to make sure you have enough saved to fund the kind of retirement you want. You may not need as much as other people, or you may need more.
Whatever the case, it all starts with a specific plan for you based on your situation. So, don’t dwell too long on Vanguard’s calculated average, particularly given that the number tells you nothing about how much (or how little) these people have saved up outside of their employer-sponsored retirement plans.
