August 30, 2019

Average 401K Return

Read more about Investing

Saving money for retirement can be a challenge, but a 401(k) is a good place to start. Keep reading to learn about the average 401(k) return and how it may affect your retirement goals.

How Much of a 401(k) Return Should You Expect?

The average 401(k) return is approximately 5%. That figure assumes that you contribute regularly to your 401(k), diversify your portfolio, and let the earnings grow.

Your actual return depends on:

  • Asset allocation
  • Contributions
  • Market conditions

Investing in a 401(k) is best suited for long-term growth, as the balance can change drastically in the short term.

The average 401(k) balance in 2018 was $95,600. That number is down from the previous year ($104,300).

How Should I Invest My 401(k) Savings?

Your 401(k) portfolio may consist of stocks, bonds, and mutual funds. Of those investments, stocks typically are the most volatile.

Choosing where to put your money depends on how much risk you are willing to take. Your options include:

  • Conservative Growth
    If you are nearing retirement or prefer less risk, a 50/50 portfolio of stocks and bonds will give you the stability you need in your 401(k).

  • Moderate Growth
    Select a portfolio of 60% stocks and 40% bonds. Stocks have the potential for greater return but more risk. Having guaranteed bonds secures much of your investment.

  • Aggressive Growth
    If you are young and can take greater risks because you won't need your retirement funds soon, putting as much as 80% of your portfolio in stocks and 20% in bonds or the equivalent can give you greater growth.

Speaking with a financial planner is a great way to properly invest your money. A study conducted by Aon Hewitt and Financial Engines determined that plan participants who sought financial advice received returns that were 3% higher than those who did not.

How Much Can I Contribute to My 401(k)?

The average contribution rate for a 401(k) is 10.5% of salary. But there are age-related restrictions.

  • Employees under age 50 can contribute up to $19,000 to their 401(k) in 2019.

  • Individuals over age 50 can "catch up" on saving for retirement by contributing up to $25,000 per year.

Many employers will match the contributions, which in turn increases the total account balance. According to the Bureau of Labor Statistics, the average employer contributes or matches 3.5% of 401(k) contributions.

Did You Know?
More than 50 million Americans—or half of all workers—actively participate in their company's 401(k) program, according to a recent study.

However, only 13% of participants maxed out their 401(k) contributions.

401(k) Fees

401(k) plans typically charge fees that can take away from your contributions. These include investment fees, administrative, and service fees. Here's how they typically work:

  • Plans with over $100 million in assets may charge 0.5–1% of the balance.

  • Plans under $100 million typically charge 2% or more of the account balance.

Knowing the fees that your 401(k) charges and how they affect your balance can help you choose the right plans and contribution amounts.

71% of 401(k) participants don't know that they pay fees on their 401(k) account. Roughly 62% are aware that there are fees, but don't know how much they pay.

401(k) Goals by Age

Not sure how if you're on track for retirement? Use this guide to help:

  • In your 30s
    Try to have at least one year of salary saved in your 401(k).

  • In your 40s:
    You should be on your way to saving approximately 4 times your annual salary.

  • In your 50s:
    Try to have at least 7 times your salary saved in your 401(k).

As of 2019, you can make up to $6,000 in additional contributions to help you catch up on your retirement savings.

If you couldn't start contributing to your 401(k) in your late 20s or early 30s, the IRS allows you to make catch-up contributions after age 50.

Saving a $1 Million Toward Retirement

Looking to maximize your retirement savings? Consider these stats:

  • Approximately 157,000 people have at least $1 million in their 401(k) account. This is a 45% increase from the previous year.

  • According to Fidelity, individuals with balances over $1 million contributed to their 401(k) accounts for at least 30 years before reaching $1 million.

  • Depending on your lifestyle and where you live, $1 million can last for approximately 11–26 years after retirement.

Bottom Line

Contributing to your 401(k) is important, especially if you get an employer match contribution. Maxing out your contributions lowers your tax liability and sets you up for a successful retirement.

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