Average 401(k) balances fall short across all ages — many over 50 barely have enough to buy a new car

The average new car costs almost as much as the average American aged 45 to 54 has saved for retirement – ​​a whopping $47,000 versus $48,301 – highlighting the immense financial pressures faced by many as they approach their golden years .

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While 401(k) plans are critical to retirement savings, Vanguard’s “How America Saves 2023” report paints a worrying picture. The report indicates that the average 401(k) balance varies significantly across age groups.

401(k) Balances by Age Group

• Below 25:

• Average: $5,236

• Median: $1,948

• 25-34:

• Average: $30,017

• Median: $11,357

• 35-44:

• Average: $76,354

• Median: $28,318

• 45-54:

• Average: $142,069

• Median: $48,301

• 55-64:

• Average: $207,874

• Median: $71,168

• 65+:

• Average: $232,710

• Median: $70,620

O gap between average and median balances highlights disparities in savings habits. While top earners often save close to the annual limit, many others have significantly lower or no balances.

Trends: Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you.

The influence of automatic enrollment

Automatic enrollment has significantly increased 401(k) participation rates. Since the Pensions Protection Act 2006, the use of automatic enrollment has more than tripled. Currently, almost 58% of plans and 76% of plans with more than 1,000 participants have this feature implemented. This strategy effectively combats the inertia that often impedes voluntary enrollment.

Participation rates by age

Vanguard data shows that participation rates vary by age. Workers under 25, who often face student loan payments and high housing costs, have the lowest participation rates at 62%. In contrast, more than 80% of workers aged 35 to 64 contribute to their employer’s plan. Overall, the introduction of automatic enrollment has significantly increased participation rates, demonstrating its effectiveness in encouraging more consistent savings habits.

Factors that contribute to low savings

Several factors contribute to lower-than-expected 401(k) balances. Economic instability, such as inflation and market fluctuations, can dissuade individuals from saving or cause them to withdraw prematurely from their retirement accounts. Additionally, many workers prioritize immediate financial needs, such as paying off debt or covering daily expenses, over long-term savings.

Trending: How Much Money Will a $200,000 Annuity Pay Per Month? The numbers may shock you.

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Tips for Growing 401(k) Savings

Maximizing the benefits of a 401(k) requires strategic actions:

• Catch-up contributions: If you’re age 50 or older, use the catch-up contribution option to add up to $7,500 more annually.

Data from the Vanguard report shows the need for greater awareness and proactive management of retirement savings. Individuals should prioritize their long-term financial health by taking advantage of the tools and strategies available. Understanding the nuances of 401(k) savings and making informed decisions can help bridge this gap.

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This article Average 401(k) balances fall short across all ages — many over 50 barely have enough to buy a new car originally appeared in Benzinga.com

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