It’s natural to wonder how you compare to your peers – especially when it comes to financial matters. From the amount of debt to the level of your retirement account, many people saving for retirement are curious about how they stack up. While comparing yourself to averages may be interesting, it is important to recognize that it says little about your ability to pursue your personal goals. However, understanding where you stand may help to highlight opportunities for improvement within your finance picture.
We have all heard numerous statistics regarding average account balances and how most Americans are unprepared for retirement. Rather than highlight average statistics for the entire population, we are going to examine figures that only include savers that are taking a pro-active approach and have an IRA or 401(k). In the same way you wouldn’t compare your 40-yard dash time to an NFL prospect, it is important to see where you stand against other savers. Recent 401(k) and IRA statistics from the Employee Benefits Research Institute (EBRI), an authority in this area, highlight some important facts. While average balances are helpful, it may be even more meaningful to understand how much the average American has saved based upon their age and tenure at their employer.
Retirement balances by age
Unsurprisingly, the average retirement balances do increase exponentially until the retirement years and the rate of savings is a key factor. Craig Copeland, Ph.D. and Senior Research Associate with EBRI notes “Savings rates over time are a primary determining factor when it comes to building retirement account balances. Next, pay close attention to the allocation of your account.”
So where do your savings stack up? The latest EBRI statistics suggest the following:
20s – For savers in their 20s, average IRA and 401(k) balances are $21,633 and $26,428 respectively. These statistics suggest that younger workers are beginning to think about retirement sooner than they had in the past.
30s – As expected, the average retirement account balances tend to increase slowly as people age and income begins to increase. Average IRA and 401(k) balances are approximately $45,822 for IRA savers in their mid to late 30s while the average 401(k) balance is $61,757. The average 401(k) balance jumps to $81,428 for employees in their late 30s that have spent longer than 10 years with their employer.
40s – As workers age and reach their 40s, it is common to see even higher savings rates. For workers in their mid to late 40s, average IRA balances are approximately $85,921. While average 401(k) balances at this age are $117,863, balances for employees with 20 years or more with their employer average as much as $183,119.
50s – Many pre-retirees in their 50s come to the realization that retirement is closer than they thought. Balances really begin to increase during this phase as savings increase and the power of compound interest sets in. The average IRA balance for savers ages 50-54 is $114,000, increasing to $150,882 for those ages 55-59. Average 401(k) balances for workers in their 50s jump to $176,922 with long-tenured employees having balances that average nearly $303,000.
60s - A bifurcation between those that have retired and those that are still preparing to retire takes place during this time period. As such, average balances do not increase substantially for those in their 60s as compared to those in their 50s. The average IRA balance for savers ages 60-64 is $198,000, increasing to $246,964 for those ages 65-69. Average 401(k) balances for workers in their 60s jump to $171,000 with long-tenured employees having balances that average nearly $304,000.
70s – Since a larger percentage of workers are retired by the time they reach their 70s, it is common for 401(k)s to be rolled over to IRAs to manage the distribution phase of retirement. With that said, the average IRA balance for savers over the age of 70 is $232,864.
How do you stack up against your goals?
As noted earlier, seeing what you have saved compared to others gives no indication as to how “on track” you may be for pursuing your goals. Remember, it’s not just how much you have saved that is important. Instead, you must consider what you need your savings to do for you relative to your expenses. Do you know the maximum amount you can spend each year, adjusted for inflation while still pursuing your goals? Have you examined how to prepare your portfolio for the strains of distributions in retirement? Ask yourself, are you confident that you are on track for your future? Like creating a blue-print for building a home, financial planning can provide clarity on where you stand in relation to your goals while highlighting opportunities for improvement. Keep in mind, financial planning is an on-going process that should be revisited throughout your life. Consider speaking to your financial adviser to develop a customized strategy for your unique needs.
Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor. He can be reached for questions at 732-280-7550, kurt.rossi@Independentwm.com or www.Independentwm.com. LPL Financial Member FINRA/SIPC.