US News has a very interesting article that shows various interesting statistics on account balances Americans hold in his/her 401k accounts. If you are one of those people that always wonder how your 401k nest egg compares to others in the country, this article is for you.
First, here’s the median account balance separated by salary ranges for people in the 20s.
| Salary Range |
Median Account Balance |
|
$20,000-$40,000 |
$6,719 |
|
$40,000-$60,000 |
$16,393 |
|
$60,000-$80,000 |
$39,383 |
|
$80,000-$100,000 |
$56,194 |
|
More than $100,000 |
$57,794 |
I’m very surprised by this because I cannot believe the median account balance is so high! I know data are based on facts, but it’s hard for me to imagine that someone in their 20s earning $20,000 – $40,000 a year has ON AVERAGE $6,700 in their 401k.
Now, let’s look at the average 401k asset allocation for people in their 30s.
|
Type of Investment |
Share of Account Balance |
|
Equity funds |
57.90% |
|
Balanced funds |
13.50% |
|
Bond funds |
7.40% |
|
Money funds |
3.20% |
|
GICs*/stable value funds |
5.20% |
|
Company stock |
9.60% |
|
Other |
2.20% |
|
Unknown |
1.00 |
This chart shows that most Americans are too conservative in their investments and savings. We all know that stocks provide the most returns in the long term, so I would suggest people in their 30s to put more than 67.5% of their assets in stocks (equity funds + company stock), especially for money in their 401k as the investment time horizon is long.
People in their 40s might have worked for 20-30 years with the same company. Let’s see what the 401k stats are for this group of people.
|
Job Tenure |
Average Account Balance |
|
0-2 years |
$14,725 |
|
2-5 years |
$29,010 |
|
5-10 years |
$49,995 |
|
10-20 years |
$89,882 |
|
20-30 |
$133,32 |
This is interesting because many people change jobs for higher pay. However, this chart shows people who worked at their latest job the shortest are also the ones that have smallest 401k nest egg. This is disappointing because it means that people are cashing out their 401k when they switch jobs, taking the 10% penalty. We should always try absolutely everything possible to keep our 401k growing, not shrinking.
Let’s compare the account balances for people in the 50s and 60s.
|
Salary Range |
50s Median Account Balance |
60s Median Account Balance |
Percent Decline |
|
$20,000 – $40,000 |
$76,788 |
$64,147 |
16.46% |
|
$40,000 – $60,000 |
$99,932 |
$97,588 |
2.35% |
|
$60,000- $80,000 |
$163,935 |
$160,051 |
2.37% |
|
$80,000 – $100,000 |
$243,382 |
$237,303 |
2.50% |
|
More than $100,000 |
$367,413 |
$350,576 |
4.58 |
At 60 and above, we are allowed to withdraw our 401k without penalty. People in the low end of the income spectrum also decrease their 401k the most which is not surprise. It is intriguing that people with the most income at more than $100,000 (and the most money in their 401k balance) take out a bigger portion of their money (4.58%) compared with people with a smaller account balance. It is anyone’s guess why this happens but my guess would be that people with a big nest egg are thinking of diversification at retirement age and their financial advisor is helping them take out more money from their 401k into other types of investments.
There are a trillion ways to interpret any every set of data, so go check out the article and see how you compare. Report back with your thoughts.
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{ 21 comments… read them below or add one }
I suspect that the reason why the median account balance is so big is because it only counts the people that have a 401k.
For example, if I do not have a 401k, I’m not counted is having a $0 account balance.
There are a few other things you should recognize when looking at this data.
The 401(k) hasn’t been around that long, so people in their 60’s didn’t have 401(k)s available their entire career. Also, many people retire at the age of 62 when they can get Social Security and start withdrawals from their retirement savings.
When you leave a job, your 401(k) can remain in the custody of your former employer (provided their plan allows it) or you can roll it over to an IRA (recommended if your former employer has cruddy fund options). You could also roll it over to your new 401(k) plan if the rules allow. I expect few people roll their 401(k) to the new employer’s plan, all too many cash out and spend it.
So the tendencies are for people in their 60’s or with less tenure in their current job to have lower balances.
Joe: Good observation! That’s why stats are sometimes misleading!!!
Engineer: Another bunch of great points. It’s quite sad that many people cash out their 401k. I guess the lure to get a bunch of money at once is so too tempting.
k, I need some help understanding these numbers
for 30s Job Tenure
the highest average account balance is 37,438 if you worked for 5-10 years
Does that mean that for every 1 guy that makes over $100,000 and has $163,769 in his 401k, there are some 9 people making between $20k and $40k?
I guess that doesn’t sound that far off from reality.
J2R: Average balance is for all the 401k account balances that fall under the category.
The chart does not say about anything related to the number of people enrolled. The median being $163,769 for people in the 30s making more than $100,000 means that there the same number of people with 401k account balances that have more than $163,769 and less than $163,769.
I’m self employed and have been for over 17 years, so I have a Sep IRA and IRA. I’m in my 50’s and have about double for the category that represents my average income.
wamylove: Good for you! It must feel quite good to be way ahead of everyone else to financial freedom
Have you thought about early retirement or are you going to keep saving?
Unfortunately, $300K in the IRA’s and savings (not counting my home equity) is not enough to retire on. I hope it keeps growing and will add $7 to $10K per year as I have been and maybe by my mid 60’s I can consider that. I do live cheaply and always pay cash for cars.
I plan to subscribe now…
warmylove: Thank you for subscribing!
Even though $300k is not enough to retire on, it is a good sized nest egg depending on where you live.
You are doing the right thing with adding to your nest egg and letting the account grow for another 10 years which will make your best egg that much bigger.
What this survey doesn’t take into account is that someone who has changed jobs may (and should!) rollover his 401(k) into a self-directed IRA account.
So, even though he is starting over on a 401(k) balance, possibly even contributing to the allowable limit of 20%, his balance, after starting over at the new job might be only $14,000 after a couple years. But combined with an IRA balance of $72,000, the combined total reflects “retirement savings” of about $86,000.
Like you, I want to get out of the rat race and be independent of salary stress. It takes a long time, but eventually, your investment earnings will exceed your allocations. That’s when time pays off.
Wow… I too was surprised to see how much the average American in their 20s has saved in their 401(K) account. If you had asked me prior to reading this article, I would have guessed someone in their 20s making 20 – 40k might have 2k saved. I guess people really are starting to think about their financial future earlier in life.
CNN has a similar calculator where you can compare your assets and income with your age group. I tried it out and the stats were kind of hard to believe either. For one, it was based on age range like 25 to 35 and those who made 30k or less only had a few thousand dollars. I have triple the amount but I am closer to 35. When I was 25 I had a car loan so my net was a negative so that’s a pretty broad range to average out by.
I think the stats would be more accurate if it was broken down into 5 year ranges instead of 10 year ranges.
In other words, someone at the bottom of the age range saving 1K a year would have 1K where as someone at the top who saved 1K a year for ten years would have 10K but if you divide the total, 11K by 2 people you would have an average of 5.5K for both people regardless of their age in a ten year range.
The article is quite useless. A well written article would have considered the current worth of all retirement accounts (401k, IRA, Roth, 403b, etc.) And even if the article had been based on total retirement savings, does comparing oneself to others really matter? What matters is whether your current balance and future contributions will grow to allow you to have the lifestyle you want when you retire. If you’re not saving enough, you either need to save more or change your expectations.
Folks / Moneyning,
I am living proof of the greatness of 401k plans. Niethe rof my parents graduated from HIGH SCHOOL and neither ever owned stocks or funds until very late in life.
1) It’s not hard to imagine a person in their 20s earning $20-$40k per year having MORE than $6,700 in their plan. I saved about 10% of my salary (usually around $30k per year) in my 401k and was matched with 7% by ExxonMobil. By the time I was 30 (in 1994), my account was valued at $53,000!
2) My account hit $100k in 1997 (I was earning around $35k per year).
3) My account today (5/03/2008) is 4,993 shares at $89.68 per share is worth $447,772.24! I also have other ROTH IRAs worth about $60,000. So at age 44, I am at over $500,000 in investments!
4) Using the “rule of 72″, where one’s money doubles when years are divided by return percentage; If I get 12% average return, my money will double every 6 years (72/12=6), so in 18 years (2026) when I am 62 and can get to my 401k, my $500k should have turned into $4,000,000! I will then withdraw 10% per year ($400k) and even with inflation and taxes factored in , I will be living quite well.
5) Do NOT believe politicians and DEMAND to privatize Social Security, which is the biggest impedement to you and your family’s financial freedom!
And then came 2009………………………………………………………
02/15/2010:
Down to $330,000 in XOM, but the lower price per share allows me to PURCHASE more shares, which will benefit me when the price per share recovers…
Still looking at over $1,000,000 in stock by 2024 averaging 10% growth after Obama and his fellow socialists/democrats are voted out and businesses are not afraid to spend their Capital and expand their businesses.
BTW: Did I mention that SOCIAL SECURITY IS A SCAM?!?!
Interesting article and some good replies to it to continue the debate….We are going through scary times!!
I would disagree that employees should distribute contributions to their 401(k) to company stock, but there’s a catch. If the employees can get a discount on stock, or if they get preferred shares, or if their company offers healthy (3.5% or higher) dividends, then go for it. If however the company already gives stock to their employees as a benefit of working there, or if they do not offer the incentives I listed, then I would consider to plow the 60% of equities to the other funds available in the 401k that invest in stocks. An additional 15% of their distributions should be to international stock funds or indices, and then the rest in GICs and bonds.
Of course this advice are only for those who still have 30-40 years of investing left, and are aggressive growth. For those who are more conservative but have a similar timeline, 50% goes to large cap stock, 35% goes to bonds and GICs, and the rest to small-cap stock and international.
Here’s something else nobody is talking about: this doesn’t count the IRA balances people have! How much average IRA balance does an average person have?
Uh….me thinks the term “median account balance is being mistaken for “average account balance”. Perhaps someone has already pointed this out………if so I missed it.
Example
Employee Account Balance
Bill 1000
Joe 1000
Mary 3000
Bob 4000
Susan 4000
In this example, the AVERAGE account balance is 2600, but the MEDIAN account balance is 3000. The median is the mid-point of the disribution (50% of the participants and more than the median and 50% have less).
One reason why you might see a smaller median account balance for earners over 100K in their 60’s than that of those in their 50’s is: income tends to increase over time for many people. Those in their 60’s earning over 100K may not have earned that much in their 50’s. Those in their 50’s earning over 100K are more likely to have been high earners for a greater period, meaning they have the ability to save more.