When assessing your retirement readiness, it is common to compare your 401(k) balance to others to gauge progress. Recent data from Fidelity reveals that the average 401(k) balance among investors on the platform was $125,900 in the first quarter. However, breaking down this data by age group may not provide an accurate comparison. Instead, looking at industry averages might give a more realistic perspective on how you stack up against your peers.
Factors Influencing 401(k) Balances
Industry data compiled by Fidelity sheds light on the variations in 401(k) balances among different sectors. The average balance for baby boomers was $241,200, for Gen X it was $178,500, for millennials it was $59,800, and for Gen Z it stood at $11,300. Interestingly, industries with higher salaries tend to have higher 401(k) balances. For example, legal services topped the list with an average balance of $306,400, followed by the petrochemical industry at $255,500 and energy production/distribution at $214,400.
Instead of fixating on 401(k) balances, financial experts suggest that workers focus on their total savings rate to measure their retirement preparedness accurately. Fidelity recommends that 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 currently stands at 14.2%, demonstrating a positive trend towards the recommended savings rate. It is crucial to maintain a consistent high savings rate rather than getting overwhelmed by the perceived size of the retirement nest egg required.
Industries exhibit varying total savings rates, with some sectors emphasizing retirement savings more than others. Pharmaceutical companies lead the pack with a total savings rate of 19.7%, followed by petrochemicals at 19.1% and airlines at 18.4%. Conversely, industries such as retail trade (10.4%), health care excluding physicians (10.9%), and construction/scientific and technical (12.3%) have lower average total savings rates. Employer contributions play a significant role in boosting total savings rates, with industries like petrochemicals boasting an 8.2% contribution rate.
Despite making progress in saving for retirement, individuals may hinder their efforts by taking out 401(k) loans. Fidelity reports that 17.8% of plan participants have taken out a loan from their 401(k), which can significantly impact long-term savings goals. It is essential to consider the implications of borrowing from your retirement account and explore alternative financial solutions to avoid derailing your retirement strategy.
Evaluating your retirement savings in comparison to industry averages provides valuable insights into where you stand relative to your peers. By focusing on maintaining a high total savings rate and minimizing the need for 401(k) loans, you can work towards building a secure financial future for your retirement years. Keep track of industry trends and seek professional guidance to ensure that your retirement savings strategy remains on track and aligned with your long-term financial goals.