When assessing your retirement preparedness, one common practice is to compare your 401(k) balance with that of other savers. However, looking at people in your field may provide a more accurate comparison point than simply looking at your age group. Recent data from Fidelity reveals that the average 401(k) balance for investors on the firm’s platform was $125,900 in the first quarter. This balance varies significantly when broken down by age, with baby boomers averaging $241,200, Gen X at $178,500, millennials at $59,800, and Gen Z at $11,300.
Another interesting approach is to compare balances by industry to better understand how you stack up against your peers. Fidelity compiled industry data to help companies on its 401(k) platform gain insight into their employees’ savings behavior. According to Mike Shamrell, vice president of thought leadership for workplace investing at Fidelity, industries with higher pay tend to have higher average 401(k) balances. For example, legal services tops the list with an average balance of $306,400, followed by the petrochemical industry at $255,500, and energy production/distribution at $214,400. On the other end of the spectrum, industries with the lowest average 401(k) balances include retail trade at $51,200, health care excluding physicians at $66,600, and real estate at $70,700.
Instead of focusing solely on account balances, experts suggest that a better metric for assessing retirement savings success is the total savings rate. Fidelity generally recommends setting aside 15% of pre-tax income, including employer contributions, for retirement. Overall, Fidelity’s 401(k) participants had an average total savings rate of 14.2%, the closest it has ever been to the firm’s recommended savings rate. It’s essential for workers to maintain a consistently high savings rate rather than fixating on the size of their nest egg needed for retirement, which can lead to unnecessary stress and worry.
Employer Contributions Impact
A vital factor in achieving a high total savings rate is the level of employer contributions. On average, Fidelity reports an employer contribution rate of 4.8%. Industries with the highest employer contribution rates include petrochemicals at 8.2%, pharmaceuticals and airlines at 7.8% each. Having generous employer contributions can significantly boost your retirement savings progress and help you reach your financial goals more effectively.
While monitoring your progress towards retirement is essential, it is crucial to be aware of potential setbacks such as taking out a 401(k) loan. Fidelity reports that 17.8% of plan participants have taken out a 401(k) loan, which can impact your savings rate and overall financial stability in retirement. Before considering a loan, it’s important to evaluate your financial situation carefully and explore other alternatives to meet your short-term financial needs without jeopardizing your long-term retirement goals.
When evaluating your retirement preparedness, consider factors beyond just your 401(k) balance. Compare your savings rate with industry averages, assess the impact of employer contributions, and be cautious of potential setbacks like 401(k) loans. By taking a comprehensive approach to assessing your retirement savings, you can make informed decisions and take proactive steps towards a secure and comfortable retirement.
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