According to Investment Company Institute, Americans held $6.8 trillion dollars in 401(k), and $12.5 trillion dollars in IRAs at the beginning of 2023.
You may be wondering how your retirement plan and investment options compare to the totals.
. Take a look.
The average employee contribution to 401(k), 7.4%
Vanguard is the biggest retirement account recordkeeper. According to Vanguard’s estimates, in 2022 employees will contribute an average of 7.4% of their annual pay.
. IRS has high standards for contribution:
401(k) contribution limit
Employees can save up to $30,000 per year.
Average 401(k) employer contribution: 4.5%
The employer match, or free money is probably the most attractive feature of the 401(k). This usually occurs by matching some of the employee’s savings. Companies use a variety of formulas to decide how much they will match. According to Vanguard’s How America Saves Report 2023, the most common formula is 50% for every dollar that an employee puts in, up to 6 percent of their annual salary.
This is because the number that tells the most about the quality of the match. According to Vanguard, this figure is equal to 4.5% per annum of average pay.
The total contribution rate for Americans, including both employer and employee contributions was 11,3%. Financial experts recommend that you save between 12% and 15% of your income to fund retirement.
The number of investment options in 401(k), 27.2
Vanguard’s average investment plan will offer 27.2 options in 2022. Some plans offer only half as many options. Financial Industry Regulatory Authority said that most plans offer at least three choices, including mutual funds with exposure to stocks and bonds domestically and internationally, as well as money market funds.
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About 86% (of the plans analyzed jointly by Investment Company Institute and Employee Benefit Research Institute) offer mutual funds with target dates
. Target-date funds are a retirement investment that you can “set and forget”. They include an assortment of investments which automatically rebalance themselves as your retirement date approaches.
Vanguard offers target-date fund options in 98% of its plans, with investments reaching 40% by 2022.
Annual average return on 401(k), 4.9%
The return on a 401 (k) is affected by many factors, such as the investment you make, performance of the stock market, and fees.
Because of these variables, it is difficult to determine an average return on a 401(k). However, Vanguard provides a snapshot for the five-year period ending December 2022.
401(k), average fees range from 0.2% to 5%
According to BrightScope/ICI’s Defined Contribution Profile, you may not be aware that you pay 401(k). These fees range between 0.2% and 5% on your account balance.
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In general, fees are lower for larger plans. You are required by law to receive a fee disclosure report from your plan every quarter. You can invest just enough in your 401 (k) for the match from the company if you do not like the results. Contribute any extra retirement funds to your IRA where you can control the costs and investments.
The average 401(k), or retirement account, balance is $112 572
Did you skip all the above stuff to get to this number? We don’t judge: financial rubbernecking has become a popular pastime.
Vanguard’s average 401(k), or retirement account, balance in 2022 will be $112,572. The median balance was $27 376.
Portion that offers a Roth-401(k), 80%
A Roth 401 (k) is a hybrid of a 401 (k) and a Roth IRA. It’s an individual retirement plan that you can fund using post-tax dollars, in exchange for tax free investment growth.
Nearly 80 percent of Vanguard plans offer Roth 401(k)s.
While you won’t receive a tax break on contributions like you would with a traditional 401 (k), there are many benefits to a Roth 401 (k), such as the fact it is a good alternative for people who make too much money to qualify for a Roth IRA , which does have income limitations.
The average IRA balance is $109,000
Fidelity Investments reported that the average IRA was worth $109,000 during the first quarter 2023. Plan provider reported that it had 13.9 millions IRAs. This represents an increase of 11.1% over the previous year.
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Calculate the average IRA balance based on age
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The number of Roth IRAs
Fidelity reported that it held 13.9 millions IRAs at the beginning of 2023. Of those, 58.4% were Roth IRAs.
The average IRA contribution is $2,700
Investors can contribute as much as $6,500 a IRA account per year ($7,500 if you are over 50).
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According to Fidelity, not everyone makes a contribution every year. The average contribution has also decreased over the years. The average IRA contribution in 2023 was $2700. This is down from $3,000 the previous quarter and $3,300 the quarter before. This may be partly due to the fact that consumers are feeling the pinch from inflation and increasing interest rates
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This retirement account-gawking will only be worthwhile if you are inspired to examine your own savings. It’s about answering the question, “Am I saving enough and in the correct accounts?”
Fidelity reports that Americans only have 78% of their retirement income. A retirement calculator can help you get back on track. It will calculate your income and give you a recommendation of how much money you need to retire and how to set aside each month.