The average new car costs almost as much as what the average American in the 45 to 54 age group has saved for retirement – a whopping $47,000 versus $48,301 – underscoring the immense financial pressures many face as they approach their golden years .
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While 401(k) plans are fundamental to retirement savings, Vanguard’s report “How America Saves 2023” paints a troubling picture. The report indicates that the median 401(k) balance varies significantly across age groups.
401(k) Balances by Age Group
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Under 25:
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Average: $5,236
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Median: $1,948
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25-34:
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Average: $30,017
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Median: $11,357
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35-44:
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Average: $76,354
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Median: $28,318
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45-54:
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Average: $142,069
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Median: $48,301
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55-64:
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Average: $207,874
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Median: $71,168
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65+:
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Average: $232,710
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Median: $70,620
The gap between the mean and median balance highlights the differences in savings habits. While high earners often save closer to the annual limit, many others have significantly lower or zero balances.
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The influence of automatic enrollment
Automatic enrollment has significantly increased 401(k) participation rates. Since the Pension Protection Act of 2006, the use of automatic enrollment has more than tripled. Currently, nearly 58% of plans and 76% of plans with more than 1,000 participants have implemented this feature. This strategy effectively combats the inertia that often prevents voluntary enrollment.
Participation figures by age
Vanguard’s data shows that participation rates vary by age. Workers under the age of 25, who often face student loan payments and high housing costs, have the lowest employment rate at 62%. In contrast, more than 80% of employees aged 35 to 64 contribute to their employer’s scheme. Overall, the introduction of auto-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 prevent individuals from saving or cause them to withdraw from their retirement accounts prematurely. Additionally, many workers prioritize immediate financial needs, such as paying off debt or covering daily living expenses, over long-term savings.
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Tips for Growing 401(k) Savings
Maximizing the benefits of a 401(k) requires strategic actions:
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Catch-up contributions: If you are age 50 or older, you can use the catch-up contribution option to add up to an additional $7,500 annually.
The data from Vanguard’s report shows the need for greater awareness and proactive management of retirement savings. Individuals must prioritize their long-term financial health by utilizing the tools and strategies at their disposal. Understanding the nuances of 401(k) savings and making informed decisions can help bridge the gap.
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This article The average 401(k) balance falls short for all ages — many over-50s barely have enough to buy a new car. Originally appeared on Benzinga.com
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