This Is the Average 401(k) Balance, Data Shows. How Does Yours Compare?

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Want to know how much the typical 401(k) saver has? Read on for the answer. [[{“value”:”

Saving for retirement, whether in an IRA or 401(k), is crucial if you want to be comfortable later in life. With Social Security only paying the average retiree about $23,000 a year today, it’s clear that you’ll probably need some extra income to avoid financial stress down the line.

Now, if you have access to a 401(k) plan through a job, it pays to contribute for several reasons. First, many 401(k)s come with an employer match, so you might get free money for your retirement.

Also, the way 401(k)s are funded could make it easier to keep up with your savings efforts, since contributions are made through automatic payroll deductions.

It’s not as if you’re actively writing your 401(k) a check at the end of the month, after you’ve paid your bills. Instead, that account gets funded before your paycheck even hits your bank account.

If you already have a 401(k), you may be curious to know how your balance compares to the average. But while you may want to know how much money the average saver has, it’s even more important to know how they probably got there.

401(k) balances were up in 2023

In 2023, the average 401(k) balance was $115,000, according to T. Rowe Price. That represents the highest balance the firm had seen in 10 years, aside from 2021’s average of $124,000.

But a big reason 401(k) balances took off in 2023 was due to a solid performance from the stock market. And if you want to grow your 401(k) into an impressive sum, then loading up on stocks is your best bet.

What a stock-focused strategy can do for you

One thing you should know about 401(k)s is that they generally do not make it possible to invest your money in individual stocks. Rather, you’re usually limited to different funds that allow you to invest in the stock market, either on a very broad level (like with an S&P 500 index fund) or based on the choices someone other than you makes. For example, mutual funds employ fund managers to pick stocks, and you can often buy mutual funds in a 401(k) plan.

You may be skeptical about putting your savings into stocks given the potential for volatility. But you should also know that over the past 50 years, the stock market has averaged an annual 10% return, as per the performance of the S&P 500 index. And that return accounts for both good years and bad.

In fact, one of the simplest ways to invest your 401(k) may be to find an S&P 500 index fund and put your money there. If you contribute $400 a month to your 401(k), whether on your own or in conjunction with an employer match, and your plan gives you an average yearly 10% return, in 40 years, you could be sitting on over $2.1 million.

A big reason not to get so caught up in what the average 401(k) looks like is that a number like $115,000 means different things for people of different ages. That number can also fluctuate from one year to the next, based on the stock market’s performance.

So while it’s not terrible to want to know what the average 401(k) balance is, or how yours compares, a better use of your time is to find out what your company’s 401(k) match is and start contributing enough to claim it in full. Then, look at your 401(k)’s investment choices and make sure you’re putting your money to work efficiently.

If you’re invested in mutual funds, you may be losing money to fees without necessarily benefitting from a better return than what an S&P 500 index fund will give you. So whether your balance is around $115,000, way less, or a lot more, going heavy on an S&P 500 index fund in your 401(k) for many years could be your ticket to retiring with more money than you ever could have imagined.

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