401(k)s are among the most common ways to save for retirement in the United States. There is a good reason the employer-sponsored plans are so popular—they are tax-sheltered (up to $19,500 per year in 2020), maximizing your retirement dollars and making them one of the best retirement savings options for many Americans. Therefore, it is surprising that although 59% of Americans have access to a 401(k), only 32% are investing in one. A recent study by Personal Capital shows that two in five (37%) pre-retirees have no money saved for retirement whatsoever.

The majority of Americans who haven’t saved for retirement are counting on Social Security for the bulk of their retirement income. However, that is an increasingly risky bet. As more of the massive Baby Boomer generation retire, the Social Security fund is being drained. It has begun dipping into its reserves to make monthly payments, and many projections indicate that the fund may be depleted completely by 2034. Therefore, Generation Xers and millennials can expect smaller Social Security payouts, if any, which are not likely to cover their expenses when considering inflation and rising costs of living. Investing in a 401(k) is more critical now than ever.

Average 401(k) Balance By Age

*Based on statistics from “Building Financial Futures 2020” from Fidelity.

Retirement can feel like the distant future at the beginning of your career, and other investments often appear more relevant and/or attractive to young workers. However, the best way to ensure your financial security and maximize tax benefits and employer contributions (when applicable) is to begin investing in a 401(k) as soon as you begin regular employment. Unfortunately, many young people do not invest in a retirement plan during their initial decade/decades of employment or only invest minimal amounts. Based on statistics from the leading 401(k) provider Fidelity, the below data shows both the average and median amounts Americans invest in their 401(k)s by age group.

Ages 20-29

Average 401(k) balance: $13,200

Median 401(k) balance: $5,000

Fidelity recommends accruing an amount equal to at least one annual salary in your retirement account by age thirty. For example, if your annual salary is $50,000, you should have saved at least $50,000 in your 401(k) by age 30.

Ages 30-39

Average 401(k) balance: $46,200

Median 401(k) balance: $18,500

Fidelity recommends accruing an amount equal to at least three annual salaries in your retirement account by age forty. Therefore, if your annual income is still $50,000, you should have $150,000 in your 401(k) by the end of this decade. This can be challenging, as expenses often skyrocket during this period of your life due to the birth of children, mortgages, and other housing expenses.  Contributing your raises and bonuses towards retirement can keep you from falling behind during this critical decadeAges 40-49

Ages 40-49

Average 401(k) balance: $111,100

Median 401(k) balance: $39,200

By age fifty, retirement is getting closer, and Fidelity recommends that you accrue an amount equal to six times your annual income by that time. Statistics indicate that only a small minority of Americans are hitting that goal.

Ages 50-59

Average 401(k) balance: $188,100

Median 401(k) balance: $65,300

By the time you reach sixty, retirement is around the corner, and Fidelity recommends that you have eight times your current salary saved up. If you have fallen behind in previous decades, your fifties are an excellent time to catch up, as the contribution ceiling is higher for people over fifty. For employees under fifty, the 2020 contribution limit is $19,500, but people 50 and older can add another $6,500 to that amount, for a total of $26,000 annually.

Ages 60-69

Average 401(k) balance: $212,600

Median 401(k) balance: $67,600

Many Americans retire during this decade, making it the last opportunity to save for retirement. Therefore, it is a good idea to calculate your total yearly expenses and then multiply that amount by 30, assuming that you live to a ripe old age. The calculation doesn’t consider investment earnings, inflation, or unexpected expenses. Still, it will give you an idea of how much more you need to save and perhaps encourage you to increase your investment in your 401(k) as you prepare to retire. Sadly, the data shows that most Americans haven’t saved anywhere near what they need to retire comfortably.

Average 401(k) Balance By Income Level

*Based on Vanguard’s “How America Saves” annual report for 2020

The below statistics, provided by Vanguard, show how little America’s neediest citizens are saving. While Americans with an income of $150,000 or more have saved a median of $76,448, Americans who earn less than $15,000 have a median savings of a mere $1,376, less than a drop in the retirement bucket. Saving for retirement is not easy when your income is low, but even small savings can be significant over time, especially when supplemented by employer matching.

Income Level: Less than $15,000

Average 401(k) balance: $15,843

Median 401(k) balance: $1,376

When you’re in this income bracket, it can be a challenge to cover your monthly expenses. You’re probably living from paycheck to paycheck, and saving for the future may seem very difficult. Many people don’t realize that even small amounts build up over time, especially if your employer matches your contribution. Try cutting unnecessary discretionary expenses and contribute your savings towards retirement. If you’re young, time is on your side. You can invest in education and training to raise your earning potential and allow you to save more in the future.

Income Level: $15,000 – $29,999

Average 401(k) balance: $10,283

Median 401(k) balance: $2,678

Most people at this income level do not have advanced education, limiting their future earnings and current income. If you are in this bracket and on the younger side, investments in education will lead to higher-paying jobs, allowing you to contribute more towards retirement. If it is an obstacle to pursue an advanced degree, consider side-hustles like Uber, Appen, DoorDash, and freelancing to obtain additional income. Like people in the last category, members of this category are struggling to make ends meet. While their median balance is slightly higher, their average balance is lower, perhaps reflecting the fact that members of this category often have to support other people on their income.

Income Level: $30,000 – $49,999

Average 401(k) balance: $22,679

Median 401(k) balance: $6,909

No matter where you live, this is the income range where you want to start investing heavily in your 401(k). Experts recommend saving at least 20% of your income to build a strong financial foundation. Recent college graduates often find themselves starting in this income range. Since the early investment will pay off more in the future, savvy young adults can begin saving heavily and cut costs by limiting discretionary expenses. In this category, how much you can save depends on where you live. Living in expensive cities, it can be hard to get by, but in other areas, it may be possible to live comfortably in this income range, giving you the option to start saving.

Income Level: $50,000 – $74,999

Average 401(k) balance: $54,588

Median 401(k) balance: $21,359

Experts recommend that people in this income bracket contribute 10-15% of their annual salary towards their 401(k). If you do so consistently, you’ll be in excellent shape for retirement and most likely retire on time. People begin to live comfortably in this income bracket, which explains why it has the highest median balance jump. People in this bracket often have stable jobs that allow them to think ahead and plan for the future.

Income Level: $75,000 – $99,9999

Average 401(k) balance: $92,596

Median 401(k) balance: $41,507

People generally have more disposable income in this income range, and saving for retirement is no longer a considerable burden. Experts recommend that you max out your 401(k) if you’re in this category. The small pinch now will lead to a massive payoff in the future.

Income Level: $100,000 – $149,000

Average 401(k) balance: $137,058

Median 401(k) balance: $61,635

It should be easy to max out your retirement accounts in this bracket, but surprisingly, many people in the six-figure income range don’t even have a full year of income saved for retirement. Usually, this is due to lifestyle choices. However, you don’t want your current lifestyle to come at the expense of your future financial security. The more you save, the more financial freedom you will have in the future, and in this income bracket, there is no reason not to maximize your savings.

Income Level: $150,000 and above

Average 401(k) balance: $193,130

Median 401(k) balance: $76,448

If you are in this income bracket, there is no reason you shouldn’t be maxing out your 401(k) every year. However, averages show that many people have high discretionary spending and miss out on the tax breaks and the financial security a 401(k) can provide. It’s never too late—if you’re in this category, start maximizing your savings today.

Breaking It Down: Where Do You Stack Up?

There are many valid life challenges that legitimately impact how much you can contribute to your 401(k). However, smart financial planners will always make retirement savings a top priority and take the right steps to ensure they are saving wisely. The two data sets, savings by age and savings by income level, show that very few Americans invest sufficiently in their 40(k)s. While this might be predictable for people in lower-income brackets and younger age categories, surprisingly, it is a problem across the board.

6 Best Strategies to Boost Your Retirement Savings

Understand when you want to retire: When choosing the best retirement savings plan for your needs, it is crucial to think about when you want to retire. If you enjoy your work and it does not require hard physical labor, you may aim to work well into your seventies and feel comfortable investing less in your 401(k) or retirement savings plan every month. However, things don’t always go according to plan, and therefore it is a good idea to give yourself a safety cushion. Even if you don’t plan to retire when you turn 65, unexpected health or personal problems may force you to do so. Increasing your investment in your 401(k) will ensure that you are covered if you need to retire earlier than you planned.

Meet with a financial advisor to discuss your goals: General advice is helpful, but at the end of the day, each person’s situation is unique. A qualified financial advisor can review your financials’ specifics and recommend options that fit your age, health, ability to manage risk, the projected scope of investment, dependents, and more. For example, a person at the beginning of his/her career may benefit from different options than someone with a short retirement time horizon. A person with a secure, tenured position may require a different plan than someone working in a more volatile profession. He or she can look at your unique situation and create a comprehensive retirement plan tailored to your needs. The plan will detail how much you need to save to retire comfortably while maintaining your current lifestyle and assessing whether you will have enough income to last through retirement.

Take full advantage of your employer’s 401(k) match: If your employer offers a 401(k) with match funding, and you aren’t contributing to the fund in full, you are basically giving away money. In matching programs, employers match what you invest in your fund, so the less you put in, the less they invest. It may seem impossible to invest the full amount—life is full of burdensome and sometimes unexpected expenses such as medical bills or college tuition that may lead you to reduce your investment in your 401(k). However, the less you invest, the less your employer is putting in. Therefore, it is always a good idea to make saving for retirement a top priority in your monthly budget.

Reduce or pay off debt: The average credit card rate or interest rate on loans far exceeds the stock market’s historical average annual return, which reflects the earnings you can expect to receive from your 401(k). Therefore, even if you have saved for retirement, if you have also incurred debt, you can get caught in a cycle in which your debt interest rates outpace your earnings from retirement investments. It is recommended that you prioritize reducing or paying off your debt over your investments in retirement plans. If possible, it’s best to do both.

Contribute to an IRA: Like 401(k)s, IRAs offer valuable tax benefits. However, rather than being sponsored by employers, they can be opened by individuals through brokers or banks. If your employer offers a 401(k) with an employer match, it makes sense to invest enough in your 401(k) to maximize the employer match. Once you have received the maximum match or your employer does not offer a match, you may want to consider investing in an IRA, where there is a larger selection of investment opportunities and fewer administrative fees than in most 401(k)s.

Develop other sources of income: Like in all investments, it is always a good idea to diversify when saving for retirement. 401(k)s have the advantage of being tax-exempt, but they are not risk-free. Therefore, if you have the option to supplement your retirement income with an alternative investment such as a rental property, you can protect yourself from stock market fluctuations and other market fluctuations that may impact your 401(k).

The Bottom Line

Projections show that the value of Social Security payments for Gen Xers and Millennials will not be enough to support them in retirement when taking the rising cost of living into account. Therefore, it is critical that pre-retirees invest in a 401(k) or other tax-sheltered retirement savings plans such as IRAs. If your employer has a matching option, it is a good idea to maximize your 401(k) investment at least to the matching maximum to utilize your full benefits. Likewise, it is important to minimize debt, as the interest rates on debt often surpass the income from retirement savings plans.

No matter how old you are, retirement is coming, and there is no better time to start saving than right now.