When evaluating your preparedness for retirement, it is common to compare your 401(k) balance to others, but a more accurate comparison may be with people in your specific field rather than just your age group. Recent data from Fidelity shows that the average 401(k) balance for investors on their platform was $125,900 in the first quarter. However, when broken down by age group, the average balance varies significantly. Baby boomers had an average balance of $241,200, Gen X had $178,500, millennials had $59,800, and Gen Z had a mere $11,300 in their 401(k) accounts.
Even more telling than comparing balances by age is looking at balances by industry. Fidelity has compiled industry data to help companies on its platform understand their employees’ savings behavior. This data can provide insight into how your savings measure up to those working in similar fields. Mike Shamrell, vice president of thought leadership for workplace investing at Fidelity, emphasizes that many companies use their 401(k) plans as a tool to attract top talent. Industries with higher average 401(k) balances tend to be those with higher pay, such as legal services with an average balance of $306,400, followed by petrochemicals at $255,500 and energy production/distribution at $214,400. Conversely, industries with lower average balances include retail trade, health care (excluding physicians), and real estate.
While balance comparisons can be helpful, experts suggest that a more accurate metric for evaluating retirement savings success is the total savings rate. Fidelity recommends that workers aim to set aside 15% of their pre-tax income, including employer contributions, toward retirement. The average total savings rate for Fidelity’s 401(k) participants is 14.2%, which is the closest it has ever been to the firm’s recommended rate. It is essential to have a consistently high savings rate rather than fixating on a specific nest egg amount.
Industries with the highest total savings rates include pharmaceuticals, petrochemicals, and airlines, with rates ranging from 18.4% to 19.7%. On the other hand, industries like retail trade, health care (excluding physicians), and construction have lower average total savings rates. Employers play a significant role in helping employees achieve a high total savings rate, with industries like petrochemicals, pharmaceuticals, and airlines offering generous employer contribution rates.
It is important to note that any progress made in retirement savings can be significantly impacted if individuals take out a 401(k) loan. Fidelity reports that 17.8% of plan participants have taken out such loans, which can hinder long-term savings goals. It is crucial for individuals to consider the implications of borrowing from their retirement funds and explore alternative options to meet short-term financial needs.
While comparing 401(k) balances can offer some insight into retirement preparedness, evaluating total savings rates and industry averages may provide a more accurate depiction of one’s financial standing. By focusing on maintaining a high savings rate and leveraging employer contributions, individuals can work towards building a secure financial future for their retirement years.
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