One of the most common investment vehicles that Americans use to save for retirement is a 401(k).

To help you maximize your retirement dollars, the 401(k) is an employer-sponsored plan that allows you to save for retirement in a tax-sheltered way. You can contribute up to $22,500 in 2023.

If your employer offers a 401(k) and you are not utilizing it, you may be leaving money on the table — especially if your employer matches your contributions.

While the 401(k) is one of the best available retirement saving options for many people, only 60 million Americans contribute to one.¹ That’s staggering given the number of employees who have access to employer-sponsored plans: 68% of employed Americans.²

So how much do people actually have saved in their 401(k) plans? And how does this stack up against what they could have saved if they were maxing out their 401(k) every year?

The average 401(k) balance by age

Take a look at this chart showing the estimated average 401(k) balance by age.

Source and methodology: This information is pulled from Empower platform data, as of March 31, 2022. It includes active participants of Corporate Defined contribution plans, excluding heritage MassMutual and Prudential participants, and also excludes terminated, deceased and beneficiary accounts.

Average 401(k) balance at age 25-30 – $16,371; median – $6,164

When you’re in your 20s, if you’ve paid down any high-interest debt, try to save as much as you can into your 401(k). The earlier you start, the better. As you can see from the potential savings chart (below), compounding earnings is no joke.

Average 401(k) balance at age 30-35 – $33,135; median $12,169

When you’re in your early 30s, this is a good time to make sure you are aggressively paying down any non-mortgage debt. If you still have high-interest debt, you may be earning 8% in your retirement account, but might be paying 20% or more in credit card interest.

Average 401(k) balance at age 40-45 – $90,774; median $26,989

If you haven’t already started to max out your 401(k) by this age, then you may want to start thinking about what changes you can make to get as close as possible to that $22,500 per-year contribution. You don’t want to lose out on years of potential compounding growth.

Average 401(k) balance at age 50-55 – $161,869; median $43,395

When you hit your 50s, you become eligible to make larger contributions toward your retirement accounts. These are called catch-up contributions. Consider taking advantage of them! Catch-up contributions are $7,500 in 2023. So, if you contribute the annual limit of $22,500 plus your catch-up contribution of $7,500, that’s a total of $30,000 tax-advantaged dollars you could be saving towards your retirement.³

Average 401(k) balance at age 60-65 – $198,194; median – $53,300

By your early 60s, you should have a better idea of what retirement could look like for you and what it really means for you to be “retired.” Do you want to keep working as long as you can? Would you like to slow down? What are your Social Security benefits and when is the optimal age to start taking them? Are you eligible for spousal or survivor benefits?

Average 401(k) balance at age 65-70 – $185,858; median – $43,152

The most common age to retire in the U.S. is 62, so it’s not surprising to see the average and median 401(k) balance figures start to decline after age 65.⁴ Once you reach age 65, there are still several considerations for your retirement, even if you are no longer working and accumulating wealth. Some of these include making decisions about Medicare, creating a plan around withdrawing money from your retirement accounts, and evaluating any additional insurance needs.

401(k) savings potential by age

The following chart depicts 401(k) savings potential by age, based on several assumptions. This is how much you could have saved to help you replace your income in retirement. These numbers can seem high to many people, especially if you are older and started your retirement savings when the contribution limit was much lower. It can still be used as a guide for your target total retirement savings amounts, including your IRA, Roth IRA and after-tax savings. While it’s designed for one person, it can also be used as a guide for a married couple if one spouse decides to no longer work.

The assumptions for this chart include:

• The numbers are more forward-looking vs. backward, since 401(k) contribution limits were lower in the past. (For instance, in 2022, the 401(k) contribution limits rose $1,000 from 2021.)
• You start full-time employment at age 22 at a company that provides a 401(k), without a company match.
• You contribute $8,000 to your 401(k) after the first year; then from the second year onward, you contribute the maximum annual amount of $20,500.
• The “No Growth” column shows what you could potentially have in your 401(k) after so many years of a constant $20,500 per-year contribution and no growth.
• The “8% Growth”* column shows what you could potentially have in your 401(k) after so many years of a constant $20,500 per year contribution (ignoring catch-up contributions but those over age 50 can actually add an extra $6,500 per year into a 401(k)) compounded over the next 43 years.
• The difference between the two columns emphasizes the power of growth, compounding over time. By starting early and enjoying historically average returns, at age 65, an individual could turn $869,000 of contributions into over $6.4 million.

*FOR ILLUSTRATIVE PURPOSES ONLY. This hypothetical illustration does not reflect a particular investment and is not a guarantee of future results. It assumes an 8% annual rate of return, reinvestment of earnings and no withdrawals. Rates of return may vary. The illustration does not reflect fees, which could change the outcomes provided.

Breaking it down: Where do you fit in?

There are many reasons you might think this chart seems totally reasonable, or conversely, totally unreasonable. And that’s understandable. Life presents us all with different challenges. We have unexpected medical expenses, decide to go back to school, or have kids and want to pay their college tuitions. These are all perfectly valid reasons as to why you might be falling behind where this chart says you should or could be.

If you are on the younger end of the ages shown on the chart, you may be daunted at the prospect of contributing $8,000 per year to your 401(k), not to mention $22,500. Where you live, what your first-year salary is, or what loans you may be paying can make it difficult for this contribution to seem realistic. It’s crucial, however, to recognize the importance of saving as much as you can for retirement as early as you can.

To illustrate why retirement saving should be a top priority in your monthly budget, think about the implications of this chart for when you are 65 years old. You no longer want to save, and are about to retire. The question then becomes: "Do I have enough saved to retire comfortably?" 

So, let’s determine, based on the two scenarios in the potential savings chart, whether these figures would be sufficient to support your lifestyle for the rest of your retirement.

The average life expectancy for men is around 84 years old, and 86.5 years old for women.⁵

Let’s say you are retiring at age 65. If you take the numbers at the low and high end of the chart, then divide by 22 (the approximate number of years you might expect to live if you retire at 65), you get $39,500 on the low end, to a whopping $292,714 on the high end, to spend annually for the rest of your life.

If you add maximum Social Security benefits ($51,960 assuming you retire at full retirement age in 2022), you may increase your income to $91,460 to $344,674 per year.⁶

Yes, $91,460 may seem like quite a bit of money, but remember, inflation can throw a wrench into this and make your money less valuable in the future. Also, Social Security benefits may decrease or be gone altogether by the time Millennials and Gen-Zers retire.⁷

Five steps to take now to help improve your retirement readiness

While the average 401(k) balance at pre-retirement age (55-60) is around $199,643, that balance still falls far below even the “no growth” column of the savings potential chart for the same age.⁸ And while $200,000 is no chump change, it’s also probably not enough to retire comfortably for most people.

Needless to say, many people are falling way below their savings potential. But the good news is it’s not too late to turn things around.

1. Save early, often and aggressively.

Yes, saving is hard. It’s hard when you are young and not making a large salary, and it’s hard when you’re older and big life expenses get in the way. However, the biggest threat to your retirement is inaction. Even if it’s uncomfortable to max out your 401(k), do it if you can. If you get a salary raise, consider putting 50% of it toward savings if you’re able. The earlier you can save, the better off you may be, and you may even surprise yourself with how much you are able to put away. Compounding can do wonders when there is a positive annual return as you can see from the high end of the potential savings chart, so the earlier you can save more, the farther your money may go.

2. Don’t rely only on Social Security.

With half of Americans (51%) planning to retire at 65 or younger, it’s crucial to save in other investment vehicles, such as a 401(k), in order to maintain your desired lifestyle in retirement. 

According to the United States Social Security Administration, Social Security is on track to be depleted by 2034, at which point they will begin paying a portion of the benefits from ongoing tax revenue. Don’t rely solely on Social Security; it may not fully be there when you retire.⁹

3. Have a realistic understanding of when you want to retire.

Having clearly defined personal goals will help you determine how much you should have saved. Your savings objectives will be different if you plan to retire at 50 than if you plan to continue working past 70.

Additionally, it’s important to determine as accurately as you can what your cost of living will be in retirement. How much do you need to spend per year to maintain the lifestyle that you want for the rest of your life? Have a good sense of what your costs will be so you can factor that into your overall retirement strategy. Really evaluate how long you want to continue working, and what retirement age is realistic for you based on your income and your current level of savings.

4. Develop other sources of income.

Think about other ways you can secure sources of income in retirement outside of collecting Social Security and withdrawing from your 401(k). This will not only prevent you from having all your retirement eggs in one basket, but it is also something to consider if your 401(k) balance is lower than you’d like. Where can you invest and how can you optimize your portfolio for potentially greater returns? Consider other ways you can supplement your retirement income, and speak to your financial advisor about what solutions could work for you.

5. Leverage all the resources at your disposal.

There are many tools available to help you understand your financial life in more detail. Not leveraging them can result in a huge blind spot when it comes to your finances. Simply having this information will help you understand if you are on the right track, and how to help accelerate your progress on your retirement goals. If working with a financial professional is an option for you, this can be an invaluable resource, especially as you get closer to retirement.

A financial professional who has your best interest in mind can help you strategize and address potential gaps in your savings and retirement income plans.

Our take

Having a good understanding of where you are spending and saving, and having a holistic sense of your lifestyle costs, is crucial to your overall retirement planning objectives. The point of this savings potential chart is not to discourage anyone if you do not fall somewhere in the defined 401(k) balance range. It is more to show you what is possible.

Yes, you should consider if maxing out your 401(k) is right for you, and beyond that, you should try to save in other ways as well. Even if you don’t think that’s possible for you, striving towards these goals and contributing as much as you may get you closer to your targets than if you were to contribute very little or nothing at all.