Saving for Retirement

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401(k) balances jump, but there's room for improvement

June 02, 2014

It's a milestone worth noting, but we're not popping the champagne corks.

A few months ago, the average balance in workplace retirement plans administered at Vanguard topped six figures, surpassing $100,000 for the first time—a dramatic recovery from the end of 2008, when the average balance stood at $56,030.

Many investors, however, are still far off track when it comes to saving enough for retirement.

According to our research, the median account balance in retirement plans managed at Vanguard was $31,396 at the end of 2013, meaning that half of employees who participated in 401(k)-type plans had more than that amount, and half had less. Although balances have risen sharply overall since the depths of the Great Recession, there are still many workers who simply haven't saved much for their golden years. The average savings rate has been rising, true, but it's still a bit below the level we recommend.

What's the right amount? Our experts suggest setting aside 12% to 15% of one's pay annually for retirement, including both employee and employer contributions. At the end of 2012, the average savings rate for Vanguard 401(k) clients was just under 11%, up a fraction of a percent from 2009. Savings rate percentages for 2013 are not yet available.

401(k) balances

Patience has its rewards

Much of the rise in 401(k) balances can be attributed to a five-year surge in stock values. On average, the Standard & Poor's 500 Index, which tracks the returns of 500 large U.S. companies, increased 17.9% annually (including dividends) for the five years ended December 31, 2013.

Stocks accounted for most of the retirement plan assets invested at Vanguard during the 2008–2009 bear market and the subsequent recovery. At the end of 2008, 61% of the money in retirement plans at Vanguard was invested in equities. By the close of 2013, that figure had reached 71%, a five-percentage-point jump from just one year earlier, primarily due to the increase in stock values during the year.

It's encouraging to note that only 14% of Vanguard plan participants went to the extreme of owning an all-stock or all-fixed income portfolio in 2013. That's down significantly from 2009, when a quarter of investors owned either all stocks or all fixed income in their retirement plan accounts.

This increase in balanced portfolios can be attributed in part to the popularity of target-date investments, which blend stock and bond funds into a single retirement investment. Among retirement plans that offer such funds, 61% of those participating invested in target-date funds at year-end 2013, compared with 28% just five years before.

(Keep in mind that target-date investments are subject to the risks of their underlying funds. The year in the fund's name refers to the approximate year—the target date—when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a target-date fund is not guaranteed at any time, including on or after the target date.)

Another new high: Average annual contributions

There's another factor behind the growth in 401(k) balances besides strong stock performance, and that's a gradual rise in contributions.

The average plan participant invested $8,327 in his or her account in 2013, a figure that includes employer contributions. Workers and their employers have upped their average annual investment by more than $1,000 since 2009, when contributions averaged $7,144.

Average 401(k) contributions

What's the max?

The chart below shows how much you can contribute to your workplace retirement plan in 2014, excluding contributions from your employer.* Be aware that various factors may limit your pre-tax contributions to smaller amounts. For example, your employer's plan may call for lower maximums.

Age Maximum contribution
Under 50: $17,500
50 or older at any point in 2014: $23,000**

*Applies to pre-tax and Roth contributions, not traditional after-tax contributions.
**If your plan allows "catch up" contributions, participants age 50 and older can contribute an additional $5,500 ($17,500 + $5,500 = $23,000).


Of course, 401(k)s aren't the only investment vehicle for building retirement savings. Nearly four out of every ten U.S. households own an IRA, representing a total of more than $5.7 trillion in assets, according to a 2013 study by the Investment Company Institute.

For the 2014 tax year, IRA contribution limits are as follows:

Age Maximum contribution
Under 50: $5,500
50 or older at any point in 2014: $6,500

Note: For Roth IRAs, contributions may also be limited based on your income. See our IRA comparison sheet for details.



  • All investing is subject to risk, including the possible loss of the money you invest.
  • Past performance is not a guarantee of future results.
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