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The Average 401k Balance by Age
If you’re curious how you stack up to everyone else, it helps to look at the average 401k balance by age. But if you want to know if you’re on track to never have to work again, you might need to compare yourself to a stricter standard. As we’re about to see, the typical person’s 401k balance leaves much to be desired.
Here’s the average 401k balance by age according to the most recent annual study from the investment firm Vanguard:
There’s a few things we need to keep in mind as we break this down.
There’s No Such Thing As an Average Person
I know statistics are boring, but we need a basic refresher of the first week of Stats 101:
- Median: A number where half the observations are higher, and half are lower
- Mean (or average): Add up all the observations, divide by the number of observations
- In the normal distribution (a.k.a. “the bell curve”), the median and mean are the same
I bring this up because we often use “average” to mean “typical.” But that’s not what it means, and it doesn’t usually work when talking about money.
Imagine a neighborhood of 25 families where every family has a net worth close to $50k. Then Bill Gates moves in. The median net worth of the neighborhood doesn’t change much. But the average (mean) net worth goes through the roof. It’s not because the typical person is wealthier, it’s because Bill Gates is so absurdly wealthy that his net worth has a gravitational pull on the averages.
While Bill Gates might be an extreme example, there’s a similar effect everywhere money is involved. The people who do well do so well that they skew the averages.
So when you look at the data in the tables above and see that in every single category the average is higher than the median, that tells you that the average is really just an indicator that super successful people are super successful. Which I think we already knew.
