Reaching 50 usually means your peak earning years are approaching. It’s also the perfect time to check your retirement progress.
This is evident from the latest How American Saves report from Vanguard, the average 401(k) balance for participants ages 55 to 64 is $271,320.
Such a benchmark can make you feel incredibly safe, or deeply concerned. But before you comment on that number, you need to understand how it is calculated.
The problem with average balances
An average balance of over €270,000 sounds fantastic. It paints a picture of a well-prepared generation.
However, averages in the financial world can be highly distorted. A small percentage of business leaders with multi-million dollar accounts dramatically increase the overall average.
If you look at that average and feel like your own account is lacking, don’t panic. You compare yourself to an inflated number.
What the average numbers reveal
To get a real reality check on how your peers are doing, look at the median balance.
Vanguard reports that the average 401(k) balance for workers ages 55 to 64 is actually $95,642. This means that exactly half of all participants in this age category have saved more than this amount. The other half has less.
This figure is a much more accurate reflection of the everyday worker. It takes into account people who experienced layoffs, medical emergencies or periods of high inflation.
Maximize your employer match
If your balance is closer to the median and you want to accelerate your growth, review your current contribution rate.
If your employer offers a match, contributing enough to get it can be one of the highest-impact steps you can make, assuming you meet the vesting rules.
Employees aged 50 and over can also make a catch-up contribution. Sending part of a new raise directly to your retirement account could change your financial trajectory.
Use a rollover IRA for old accounts
Many people change jobs several times before they reach their fifties. You may be paying high administration costs for an old workplace plan that you no longer monitor.
Moving that money into a rollover IRA gives you immediate control over your money.
Corporate pension plans typically limit you to a small menu of mutual funds. An IRA gives you access to a huge variety of low-cost index funds. By lowering your investment costs, you keep more money in your own pocket.
Automate your strategy
You don’t have to be a financial expert to manage your rollover funds. Digital platforms have made management at a professional level very accessible.
Robo-advisors can automate diversification and rebalancing based on the plan you choose. They automatically ensure that your portfolio stays in line with your timeline.
For many people, steady investing over time can beat the stress and risk of frequent market timing.
Your next financial step
Comparing your retirement account to national statistics only makes sense if it spurs action. Focus entirely on the variables over which you have direct control.
Track down your old workplace accounts. Check your current premium rates. Make sure your money is invested as efficiently as possible.
Taking consistent action in your 50s will lay the foundation for a much more comfortable retirement.
If you’re looking ahead to retirement and have more than $100,000 in savings, consider seeking advice from a professional. SmartAsset offers a free service that matches you with a vetted fiduciary advisor in less than 5 minutes.
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