401(k) Account Amounts for Individuals in Their 40s and 50s: How Does Yours Stack Up Against the Typical Balance?

Essential Insights

• Individuals in their 40s typically have an average 401(k) balance of $407,675, with the median at $162,143.

• For those in their 50s, the average balance increases to $622,566, while the median stands at $251,758.

• Effective retirement planning involves boosting your contributions during your 40s, taking advantage of catch-up contributions after 50, and regularly assessing your investment strategy and associated fees to help you leave the workforce sooner.

• Planning for early retirement means more than just reaching certain savings milestones; you must also prepare for a longer retirement period, increased healthcare expenses, and limited access to Social Security, Medicare, and potentially your 401(k) funds.

By your 40s and 50s, retirement becomes a more tangible reality, and for some, the idea of leaving work before the standard retirement age of 65 or 67 becomes appealing.

If you’re considering retiring ahead of schedule, your 401(k) savings become even more critical. These funds must stretch further, and you generally can’t access them without penalties until you’re 59½. For example, if you plan to retire at 55, you’ll need alternative sources of income to cover the gap until you can tap into your 401(k).

Comparing your savings to others in your age group can be helpful, but early retirement planning requires a more comprehensive approach.

Understanding 401(k) Balances in Your 40s and 50s

Data from Empower shows that people in their 40s have an average 401(k) balance of $407,675, which rises to $622,566 in their 50s. This growth is due to longer contribution periods, higher earnings, and the opportunity to make catch-up contributions after age 50.

However, averages can be misleading since a few large accounts can inflate the numbers. The median balances—$162,143 for those in their 40s and $251,758 for those in their 50s—provide a more accurate picture for most savers.

For aspiring early retirees, these numbers highlight a significant challenge: many people are well below the savings typically needed to retire a decade or more before the traditional age.

What Does It Take to Retire Early?

Retiring before the standard age means your nest egg must support you for a longer period and cover greater uncertainties, such as rising healthcare costs and inflation.

General guidelines, like those from Fidelity, recommend saving three times your salary by age 40, six times by 50, and eight times by 60. For someone earning $85,000 annually, that translates to $255,000 at 40, $510,000 at 50, and $680,000 at 60.

Withdrawing from Your 401(k) Before Age 59½

Generally, you cannot access your 401(k) savings without incurring a 10% penalty until you reach 59½, except in certain circumstances.

If you plan to retire before this age, you’ll need to rely on other sources of income until you can access your 401(k) penalty-free. This might include taxable brokerage accounts, Roth IRA contributions (which can be withdrawn without penalty), or other income streams.

Tip

Some employers allow penalty-free 401(k) withdrawals at age 55 if you leave your job, a provision known as the Rule of 55.

Six Strategies to Boost Your Early Retirement Savings

If you’re determined to retire early, consider these steps to strengthen your financial foundation:

1. Calculate Your Early Retirement Target

   Estimate your annual expenses and multiply by the number of years you expect to be retired—potentially 40 to 50 years for early retirees. Factor in inflation, healthcare, and unexpected costs to set a realistic savings goal.

2. Maximize Contributions, Including Catch-Up Options

   Don’t just settle for your employer’s match. Gradually increase your 401(k) contributions in your 40s up to the IRS annual limits, and take full advantage of catch-up contributions after 50. If early retirement is your goal, consistently max out your contributions, even if it means adjusting your lifestyle.

3. Grow Savings Outside of Retirement Accounts

   Since 401(k) withdrawals before 59½ are penalized, build up funds in taxable brokerage accounts, Roth IRAs, or high-yield savings accounts to cover expenses until you can access your retirement accounts.

4. Reevaluate Your Investment Portfolio

   Focus on growth-oriented investments in your 40s, then gradually shift toward more conservative options in your 50s to protect your savings. Diversification is crucial, especially since a market downturn early in retirement can have lasting effects.

5. Consolidate Old Retirement Accounts

   If you’ve switched jobs, roll over old 401(k)s into your current plan or an IRA. Fewer accounts mean lower fees, less risk of losing track, and easier management.

6. Prepare for Healthcare Costs

   Healthcare can be one of the largest expenses in retirement, especially before you’re eligible for Medicare at 65. If your employer offers a Health Savings Account (HSA) and you qualify, contribute as much as possible. HSAs offer triple tax benefits and can serve as a medical safety net in early retirement.

Final Thoughts

While retiring ahead of the traditional age is achievable, it requires more than just average savings. You’ll need to carefully consider how long your money must last, how you’ll handle healthcare expenses, and how to bridge the gap until you can access your 401(k) without penalties.

Benchmarks and averages can serve as useful reference points, but if you’re aiming to leave the workforce early, you’ll need to be more disciplined than most of your peers. The sooner you start planning and saving with purpose, the more options and security you’ll have when you’re ready to retire.