When evaluating your retirement readiness, many people often look to compare their 401(k) balance with others to see how they stack up. However, relying solely on age group comparisons may not provide the most accurate picture. Recent data from Fidelity reveals that individuals in similar industries may serve as a more relevant benchmark for assessing retirement savings progress. Fidelity reported an average 401(k) balance of $125,900 for plan investors in the first quarter. Breaking it down by age group, baby boomers had an average balance of $241,200, Gen Xers with $178,500, millennials with $59,800, and Gen Z with $11,300.
Analyzing 401(k) balances based on industry can offer valuable insights into savings behavior among workers. Fidelity compiled industry-specific data to help companies utilizing their 401(k) platform gain a deeper understanding of their employees’ saving habits. Mike Shamrell, the vice president of thought leadership for workplace investing at Fidelity, emphasized that many companies view their 401(k) plans as a competitive hiring advantage in the current war for talent. Industries with higher average 401(k) balances often correspond to higher paying sectors. For instance, legal services topped the list with an average balance of $306,400, followed by petrochemicals at $255,500, and energy production/distribution at $214,400. On the other end of the spectrum, industries such as retail trade, health care excluding physicians, and real estate reported the lowest average 401(k) balances.
While 401(k) balances are a common benchmark, experts suggest that evaluating workers’ total savings rate offers a more comprehensive view of retirement readiness. Fidelity recommends individuals aim to save 15% of their pre-tax income, including employer contributions, for retirement. The average total savings rate among Fidelity’s 401(k) participants stood at 14.2%, indicating a close alignment with the recommended savings target. Rather than fixating on a specific nest egg value for retirement, maintaining a consistently high savings rate is considered a key success factor. Industries like pharmaceuticals, petrochemicals, and airlines exhibit some of the highest total savings rates, emphasizing the importance of ongoing contributions towards retirement.
Generous employer contributions can significantly boost workers’ total savings rates and overall retirement preparedness. Fidelity’s data indicates an average employer contribution rate of 4.8%, with industries such as petrochemicals, pharmaceuticals, and airlines offering some of the highest contribution rates at 8.2% and 7.8%, respectively. Companies that prioritize retirement benefits and contribute to their employees’ 401(k) plans play a vital role in fostering long-term financial security.
Despite making progress in retirement savings, taking out a 401(k) loan can detract from an individual’s overall financial preparedness. Fidelity reported that 17.8% of plan participants have taken out loans against their 401(k) savings, potentially compromising their long-term retirement goals. It is essential for savers to carefully assess the implications of borrowing from their retirement accounts and explore alternative financial solutions to avoid setbacks in their savings journey.
While comparing 401(k) balances and industry averages can offer valuable insights into retirement saving trends, maintaining a consistent savings rate and maximizing employer contributions are key strategies for building a robust retirement portfolio. By focusing on sustainable saving habits and leveraging employer benefits, individuals can enhance their financial security and achieve their retirement goals effectively.