By the time you reach your 40s, you may already have a substantial nest egg for retirement. Here’s how much the average American has in their 401(k) and how much you should be saving!
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The 401(k) retirement savings plan has become an integral part of many Americans’ financial strategy. It provides individuals with an opportunity to save for their future and ensure a comfortable retirement. As the years go by, it is important to have a clear understanding of the average 401(k) balance for different age groups. In this article, we will focus on the average 401(k) balance for a 40-year-old in 2023.
Before delving into the specific figures, it is necessary to understand what a 401(k) is and how it works. A 401(k) is a tax-advantaged retirement savings plan sponsored by employers. It allows employees to contribute a portion of their pre-tax income towards their retirement savings. The contributions are invested in various financial instruments such as stocks, bonds, or mutual funds, and the earnings grow tax-deferred until withdrawn during retirement.
Now, let’s turn our attention to the average 401(k) balance for a 40-year-old in 2023. According to various studies and surveys conducted by financial research organizations, the average 401(k) balance for this age group has been on a steady rise in recent years.
Based on the current trends, it is estimated that the average 401(k) balance for a 40-year-old in 2023 will fall within the range of $100,000 to $200,000. However, it is crucial to note that these figures can vary significantly based on multiple factors, including income, contribution rates, investment returns, and individual financial habits.
Factors such as income levels influence the amount individuals can contribute to their 401(k) accounts. While the maximum contribution limit is set by the IRS each year, it is relatively common for individuals in their 40s to contribute at least 10% of their pre-tax income to their 401(k) accounts. This level of contribution can significantly impact the overall balance in their accounts.
Moreover, investment returns play a crucial role in determining the growth of a 401(k) account. The average rate of return on investments can vary greatly depending on the asset allocation chosen by individuals. A well-diversified portfolio can lead to substantial growth over the long term, while a poorly-diversified or overly conservative portfolio may hinder the potential for growth.
Lastly, individual financial habits, such as managing debt, controlling expenses, and making consistent contributions, also contribute to the average 401(k) balance. Building a strong financial foundation through disciplined saving habits can positively impact retirement savings.
It is important to remember that the average 401(k) balance is just a general guideline and should not be viewed as a benchmark for individual success. Everyone’s financial situation is unique, and individual goals and circumstances should be taken into account.
For those in their 40s, it is crucial to evaluate their retirement savings progress regularly. Seeking guidance from financial advisors or utilizing retirement calculators can help individuals determine if they are on track to meet their retirement goals.
In conclusion, the average 401(k) balance for a 40-year-old in 2023 is estimated to be within the range of $100,000 to $200,000 based on current trends. However, individual circumstances and financial habits will ultimately determine the actual balance. It is essential for individuals to focus on personal financial goals and consistently contribute to their retirement savings to ensure a secure and comfortable retirement.
I never like the x amount saved of salary because incomes swing wildly in my experience.
29 and my wife and I have 3x our income but it doesn’t feel like 25% will get us to retirement like it did our parents. The next 50 years don’t appear to be positioned anything like that last 50 were. Lower returns means you need more time or more money to reach the same end point.
I am 43 and have 150k in my 401k. Anyways people let’s get real. When we get old and retire we are not wanting to be spending like we are in our 20’s. Again I am 43 and when I retire I just want to sleep till noon and listen to AM radio all day and browse the internet. In fact that’s what I kind of do now, except I work 8 hours a day. Trust me when I get old I am not going to be spending money on stuff I don’t need. More money = more problems.
I didn't really start saving heavily until I was about 38, after my ex and I separated. Even then, my net worth was probably close to zero or maybe even negative. By the time I think I still had less than a year's income in my retirement accounts. After the divorce was finalized, I started saving like mad. But by the time I was 50, I had like 6 or 7 times my annual salary in savings and about half of that was in retirement accounts.
41 $225k saved but don't own a house and don't plan too.
I'm over 40 and have more than the average 50 year old. However, the guidance on savings being 4-6 x annually salary is confusing. What if my annual salary has changed dramatically in the last 5 years. I can't be expected to have saved that much if my salary jumped up $75k in that time frame. I've decided that taking an average of your last 5 years of AGI is better at determining what you need to have. Especially since it's based on after tax income.
So, does that 100k number account for the number of 401ks people may have? I have had enough jobs that I have a few just hanging out because I am afraid consolidating them will make a backdoor roth harder later. I know my parents each have multiple retirement accounts hanging around because they didn't consolidate.
Never sure with these things as a married couple if i should be using household income and 4.8x that for our total savings or if its just for 401k or if I should use the recent average household income not what we happen to make this year etc etc. I know these are just rules of thumb but still never quite clear how to feel about these. If we use my income only and 4.8x that in a 401k I am egregiously behind (I have 0.75x) and yet I don't think I'm actually behind. If I take our total HHI this year then our total savings in all of our investments and savings accounts (so not just 401k) is about 2.3x that and that still sounds way behind but again don't really feel that we are.
Our savings rate currently is about 50% though and our income has increases significantly so we are definitely playing major catchup.
We make 195k gross, that means we should have 936k in 401k? That’s a lot, we only have half of that. But that’s our net worth number including house.
Or is that guidance on net income?
No way we can get to 4.8 x of our current income (which is over $210K right now) by the age of 50.
We are 38 and 39.
Not as a household with two small kids in a high cost of living area (moving is not an option).
Even if we lived on beans and rice and we are not going to do that.
We are above average for the 401K for 40 year olds and way above the net worth that you are supposed to have by the age of 40 though.
Just turned 40 and by year's end I'll have 100k saved. Three years ago after a divorce I had just about nothing (just debt). Trying to save 40%- but will have to cut back to 25% to get another house. Doing it on a single median income. Don't get put off by the humble bragging of high earners – just focus on doing as much as you possibly can right now, once your efund is squared away. Save til it hurts then save a little more.
Any guidance on what should your net worth be by age? A lot of people invest in real estate and other assets along with their 401ks…any info on that?
39, wife and I have 2.5x our current income. We are going to be debt free in the next few months and have been blessed with our income doubled in the last 2 years and is doubling again later this year. Currently, we are putting away 25% for retirement but plan to increase that to over 50% when our income doubles. maybe as high as 60%. We can easily live on 20% our new Income and are trying to limit lifestyle creep. Our goal is to hit 10x our new income by 50 so we can start looking at retirement by 55 or so. Maybe earlier depending on how things go. I'll still be monetizing my hobbies in retirement so we'll always have extra Income.
I'm 41 and currently I have ~$220K in retirement accounts. I contribute to max in 401K and HSA every year since last couple of year. am I on track?
So, 4.8x you current income, or the income you want when you retire?
Just turned 40 this year. I am above average but not at the 4.5x just yet.