When it comes to assessing one’s retirement readiness, many individuals tend to compare their 401(k) balances with others in their age group. However, recent data from Fidelity suggests that looking at balances by industry may provide a more accurate comparison point. The average 401(k) balance for investors on Fidelity’s platform in the first quarter was $125,900, but this number varied significantly across different industries. For example, individuals working in legal services had an average 401(k) balance of $306,400, while those in retail trade had an average balance of $51,200.
Experts argue that instead of solely focusing on 401(k) balances, a better metric for measuring retirement savings success is the total savings rate. Fidelity recommends that workers aim to set aside 15% of their pre-tax income, including employer contributions, toward retirement. Interestingly, Fidelity’s 401(k) participants had an average total savings rate of 14.2%, which is quite close to the firm’s recommended target. This indicates that many individuals are on track with their retirement savings goals.
Having generous employer contributions can significantly impact one’s total savings rate and overall retirement preparedness. Fidelity reports that the overall average employer contribution rate is 4.8%, with industries like petrochemicals, pharmaceuticals, and airlines leading in employer contributions. These additional contributions can help individuals boost their retirement savings and achieve financial security in their post-working years.
While it is essential to focus on maintaining a high total savings rate, it is also crucial to avoid undermining one’s retirement progress by taking out 401(k) loans. According to Fidelity, 17.8% of plan participants have taken out a 401(k) loan, which can have a detrimental impact on their long-term financial security. It is important for individuals to prioritize saving and investing in their retirement accounts rather than borrowing against them.
When evaluating your retirement preparedness, it is vital to consider not only your 401(k) balance but also your total savings rate and the industry in which you work. By comparing your savings metrics with those in similar fields and focusing on maintaining a high savings rate, you can enhance your financial security and achieve your retirement goals. Remember that achieving a comfortable retirement requires consistent saving, prudent investing, and strategic planning.