WTF Just Happened To Your Retirement Accounts?!
In a Nutshell
Most Americans are financially unprepared for retirement: the median 401k balance is only $44,000, 40% have no retirement savings at all, and median checking/savings is just $8,000. Hardship withdrawals and 401k loans are surging as inflation outpaces wages, pushing the personal savings rate to a 16-year low of 2.6%. While participation rates have improved, the typical worker nearing retirement will have just $3,800 annually from their 401k at a 4% withdrawal rate—far below what's needed.
These notes were generated by AI and may contain inaccuracies.
A record number of Americans are now carrying credit card debt that they can't pay down. More Americans are tapping into their 401ks for emergencies. Costs are high. Americans are struggling. Inflation is outpacing folks' paychecks. A family of four now needs nearly $140,000 a year just to survive.
Vanguard released a new report that tracks the retirement accounts of nearly 5 million people. The average person now has $167,000 stashed away in retirement. The typical American, the person right in the center, has just $44,000. One in four people have less than $10,000. One in 10 have zero or negative net worth.
Vanguard analyzes the real accounts of 5 million Americans annually. 25 years ago, only 65% of workers participated in their 401k. Today, that number hit a record 86%. The savings rate of those people has just hit an all-time high of 12.1%.
The average 401k balance of $167,000 is skewed by a small number of multi-millionaires. The median person had less than a third of the average at just $44,000.
Roughly 70% of people are in a professionally managed allocation. About 61% of people are in a single target date index fund, with nearly two out of every $3 being invested this way.
For people aged 55 to 64, the median 401k balance is only around $95,000. A 4% withdrawal rate gives $3,800 a year in spending, or $317 a month to spend in retirement after working for 40 years.
40% of Americans have absolutely no retirement savings in any account whatsoever.
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According to the Federal Reserve, the median American household has about $8,000 in their checking and savings accounts combined. For those under the age of 35, that number drops to about $5,400. For older people living alone, it's as low as $4,300.
Hardship withdrawals hit a record 6% of participants this year. This is the sixth straight year that this has increased, and it's roughly triple what it was from before the pandemic. About 13% of people now have outstanding loans against their 401k.
The US personal savings rate fell to 2.6%, the lowest it's been since April of 2008. The 30-year average is about 5.7%. The savings rate declined monthly: 4.3% in January, 3.6% in February, 3.2% in March, and 2.6% now. The stock market increased 28% over the last year.
31% of Americans are now considered upper middle class, an amount that's tripled since 1979. Rent, groceries, insurance, and child care have all outpaced incomes.
By age 30, have 1 times salary saved. By 40, have 3 times salary saved. By 50, have 6 times salary saved. By 60, have 8 times salary saved. By retirement at 67, have 10 times annual salary saved across all retirement accounts.
At age 24, $150,000 is needed for top 1%. From 25 to 34, $365,000 is needed. From 40 to 44, $1,234,000 is needed. From 55 to 59, $3.1 million is needed. For ages 65 to 69, $4,574,000 is needed.
The median 45 to 54 year old has about $87,000 saved against a benchmark of $450,000.
- Always get the employer 401k match, which provides a guaranteed return of 50 to 100%
- Use auto escalation to automatically increase 401k contributions by 1% every year
- If over age 50, max out catch-up contributions of $7,500 per year extra, which could add almost $200,000 over 15 years
- Watch investment fees, as an index fund might charge 0.03% while an actively managed fund could charge 0.75% or more
- Don't get discouraged if behind, as many people are behind these benchmarks
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