Knowing the overall average retirement savings doesn't help you as an individual - you need to compare with other workers in your age group to get a better understanding of how you're doing.
People are always curious how they stack up to others, sometimes because they’re looking for a boost of confidence, sometimes they want to see if the grass is greener and sometimes they just want to make sure they haven’t fallen behind.
While the average participant at Vanguard has a retirement balance of $86,212, the number really doesn’t tell you anything. For instance, workers age 65 and older actually have an average account balance of $176,696 — more than twice the overall average.
The overall number doesn’t tell you anything as an individual — you need to compare with other workers in your age group to get a better understanding of how you’re doing. Clearly a 28-year-old shouldn’t expect that his or her total savings should be on par with a 54-year-old.
This doesn’t just hold true for overall savings, though. The closer you get to retirement, the more your saving strategy will, and should, change. Vanguard’s How America Saves 2013 report found that while the average worker participating in a workplace retirement plan saves 7% of pay, someone under the age of 25 only contributes 4.3% while those over the age of 65 contribute 10%.
Furthermore, most investors have probably heard that the closer they get to retirement — and during retirement — their exposure to stocks should decrease. Younger investors have the luxury of time to bounce back from any stock volatility or market dips, but older investors could wipe out their nest egg if they’re not careful.
See how you compare to the average for your age group.
Average balance: $3,865
Average contribution rate: 4.3%
More than two-thirds (68%) of workers under the age of 25 are invested in a target-date balanced fund — likely because they were automatically invested when they joined their employer’s retirement plan. Only 3% of this age group is invested in cash, which is more heavily invested into the older a worker gets. Just 6% is in a company stock fund, which is on par with the 25 to 34 and the 35 to 44 age groups. Lastly, 14% are in stock funds, which is the least of all age groups.
The younger the investor, the more predominantly stocks play a role in a retirement plan. Workers under the age of 25 have 84% invested in stocks, which is nearly twice as much as those age 65 and older.
Workers under the age of 25 much less likely than others to have taken a retirement plan load and if they do, they borrow, on average, just $2,500.
Ages 25 to 34
Average balance: $21,524
Average contribution rate: 5.5%
The average worker in this age group has drastically decreased their investment in target-date balanced funds. While 68% 25-year-olds invested their savings in these funds, that percent drops to just 38% now. The percent invested in a company stock fund remains the same at 6%, while workers invested in bond funds and cash both increase from 3% to 6%. Lastly, an average of 35% of workers between the ages of 25 to 34 has retirement savings in stock funds.
At this point, stocks still play a dominant role in retirement plan investments, and this age group has, on average, 80% of their money invested in stocks.
During this period, the percent of participants with retirement plan loans increases from 5% to 15% and the average retirement loan amount more than doubles to $5,727.
Ages 35 to 44
Average balance: $54,054
Average contribution rate: 6.4%
Less than a quarter (22%) is still invested in target-date balanced funds at this point. Slightly more are invested in cash (8% compared to 6% of the previous age group), although the amount invested in a company stock fund remains at 6%. Nearly half (48%) are invested in stocks funds, which is a peak. After this age, the percent invested in stocks funds decreases.
On average, workers between the ages of 35 and 44 have 78% of their money invested in stocks — workers are still inclined to take some risk with their investing.
During this period, 22% of workers are taking retirement plan loans, although the amount hasn’t increased much: $8,827.
Ages 45 to 54
Average balance: $103,269
Average contribution rate: 7.4%
Congratulations! Sometime during this decade, you should surpass $100,000 in retirement savings. At this age, workers are more likely to create their own blend of investments by dividing their money among stock, bond and cash funds, according to Vanguard. More are investing in company stock funds (9%) and bond funds (9%) and less in target-date balanced funds (16%) and stock funds (45%).
However, this age group is still investing an average of 71% of their money in stocks. This is the last age group to show a willingness to take on so much risk, though.
This age group reaches a peak when it comes to borrowing from their retirement plans While the same amount of 45- to 54-year-olds are borrowing as the previous age group (22%), the average amount has reached $10,518. This is a difficult time in many peoples’ lives, though, since they’re usually paying a home mortgage and sending kids off to college.
Ages 55 to 64
Average balance: $154,421
Average contribution rate: 8.7%
This is the last stretch for most workers and as such just 35% are invested in stock funds, 19% are invested in safe cash and 12% are invested in bond funds. Those invested in company stock funds reaches a peak of 10%.
So close to retirement, workers between the ages of 55 and 64 are reluctant to take such a gamble with stocks — just 59% of their money is in stocks.
This age group is likely still dealing with a mortgage and children in college, just like the previous age group. Although less are borrowing from their retirement plan (16%), the average loan amount reaches a peak of $10,799.
Age 65 and older
Average balance: $176,696
Average contribution rate: 10%
At this point, investments are getting risk averse because any bumps at this point could either delay retirement further or could send a retiree back to work. As such, only 30% are invested in stocks funds, the lowest since age 25, while 29% are sticking with cash because they feel safer there.
The average amount a 65-year-old and older invests in stocks is significantly down yet again — just 48% of their account balances are invested in stocks.
Lastly, those 65 and older are the least likely to have taken a retirement plan loan. Just 4% have borrowed, but because they have more money in the plan — participants can borrow a maximum of 50% of the vested balance — the average loan amount is still very high at $9,419.