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Retirement

Saving for retirement

Saving for retirement might be the most important thing you ever do with your money. And the earlier you begin, the less money it will take!

4 minute read

Key insights

Income, age, and how long you've been working are a few key factors that determine how much you have saved for retirement.
If you start saving early, you'll give your money more time to grow, which can help you potentially retire with a larger nest egg.
Compounding—or the earnings your earnings make—can help your savings grow faster, making it a crucial strategy for long-term financial goals like retirement savings.
Saving for retirement helps ensure financial security when you stop working, so you can better manage rising health care costs and maintain your desired lifestyle.

Average retirement savings

Driven by market performance, average account balances increased by 19% in 2023, according to Vanguard's 2024 How America Saves report. The report also found that the average participant account balance was $134,128 as of year-end 2023.

How America Saves 2024 is an examination of retirement plan data from nearly 5 million defined contribution (DC) plan participants across Vanguard's recordkeeping business.

Retirement savings by age

The earlier you start saving for retirement, the better. While larger contributions can help you achieve your financial goals sooner, modest amounts can still have a significant impact, especially over the long run. That's part of why both average and median savings increase significantly with age.

Factors like income, age, and how long you've been working can have a significant impact on saving for retirement. Individuals under 25 have the lowest average savings of $7,351 and a median savings of $2,816, which may be due to factors like lower earned income, less time to save, student loan debt, or not recognizing the importance of saving early for retirement.

Savings grow progressively across age groups, peaking at an average of $272,588 and a median of $88,488 for those age 65 and older. Individuals experience substantial growth in retirement savings as they age, highlighting the importance of creating a long-term retirement savings plan and the power compounding can have on your bottom line.

Account balances by participant demographics, 2023

Vanguard defined contribution plans

Age	Average	Median
<25	$7,351	$2,816
25—34	$37,557	$14,933
35—44	$91,281	$35,537
45—54	$168,646	$60,763
55—64	$244,750	$87,571
65+	$272,588	$88,488

Retirement savings by income

Chances are you've wondered how much you should be saving for retirement. The answer largely depends on your income. Our study shows a clear, positive connection between income and average savings, emphasizing the importance of income growth for future financial security. Individuals with an income of less than $15,000 have average retirement savings of $24,175. Average retirement savings increase significantly with higher income brackets, peaking at $336,470 for those earning $150,000 or more.

Account balances by income and gender, 2023

Vanguard defined contribution plans

Age	Average	Median	All
<$15,000	$17,949	$23,424	$24,175
$15,000—$29,999	$17,227	$19,920	$18,610
$30,000—$49,999	$26,823	$26,131	$25,096
$50,000—$74,999	$59,731	$62,613	$59,273
$75,000—$99,999	$101,845	$111,918	$106,875
$100,000—$149,999	$168,642	$189,245	$178,818
$150,000+	$300,200	$382,012	$336,470
Terminated	$115,337	$155,250	$137,430

When to start saving for retirement

Because of the benefits of compound interest, saving for retirement as early as possible allows your account balance to grow exponentially over time. Early savings provide a longer investment timeline, allowing you to take advantage of market growth and recover from potential downturns. It also reduces stress and financial pressure in later years, as smaller, consistent contributions over a longer period are more manageable than trying to save large amounts closer to retirement.

Knowing how to save for retirement and starting early can help you establish disciplined financial habits, and it has the additional benefit of providing a safety net for unexpected life events.

The benefits of starting early

Building good savings habits early increases the likelihood of achieving financial security and a comfortable retirement.

Some of the benefits of saving early for retirement include:

Compound interest. Savings grow exponentially over time due to interest earned on both the initial principal and accumulated interest.

Lower monthly contributions. Smaller, regular contributions can add up to significant amounts, reducing the financial burden of making larger contributions later in life.

Financial security. Early savings can provide a safety net in the event of unexpected expenses or emergencies, helping reduce the need for loans and potentially high-interest debt.

Tax benefits. Long-term savings in tax-advantaged retirement savings accounts can result in substantial tax savings over time.

Greater risk tolerance. Younger investors, often many years away from retirement, are typically able to take on higher-risk investments and navigate market downturns, potentially leading to higher returns over the long term.

Retirement flexibility. A larger retirement fund offers more choices, like enjoying an early retirement or having more spending options during retirement.

Peace of mind. Knowing you're prepared for retirement reduces financial stress and contributes to overall well-being.

The power of compounding

Compounding interest puts your money to work for you, allowing the earnings on your savings to generate their own earnings over time, significantly increasing the overall growth of your retirement savings. Reinvesting the earned interest can accelerate your saving, turning even modest initial contributions into significant amounts over time.

This kind of boosted growth is especially powerful in the early days of saving, as it provides more time for interest to accumulate, ultimately helping to establish a more comfortable and financially stable retirement.

Why is saving for retirement important?

Saving for retirement not only aims to provide a safety net for covering essential expenses like health care, housing, and daily living, but also helps ensure financial security and independence in your later years when you may no longer be earning a steady income.

Insufficient savings can cause financial hardships and diminish quality of life, which is even more difficult to overcome as you age. A well-funded retirement plan offers the freedom to enjoy your retirement without financial stress, so you can travel and pursue the hobbies and other activities that contribute to a fulfilling and comfortable life.

Social Security shouldn't be your only retirement plan

Social Security benefits are designed to supplement retirement savings, not replace them entirely, and often don't come close to matching preretirement income.

Today, the future of Social Security is uncertain, with benefits and eligibility facing numerous potential challenges. Diversifying retirement income sources through personal savings, investments, and employer-sponsored plans is essential for financial stability and security.

Spending now could mean paying for it later

Mindful spending today can help supercharge your retirement savings and keep debt at bay, boosting your overall financial well-being. By channeling funds into your retirement nest egg, you're harnessing the power of compound interest, which can significantly grow your savings over time. This proactive approach brings you one step closer to enjoying the retirement you've always dreamed of, with financial stability as your foundation.

Control what you can

Life is full of uncertainties, and events like stock market fluctuation, the economy, and inflation can impact your ability to save. However, how much you save is one thing that's entirely within your control. Start now and gradually increase your contributions over time.

How to catch up on retirement savings

Don't panic if you're behind in saving for retirement. Instead, stay focused on taking proactive steps to catch up. You can create an action plan that includes:
Evaluating your current financial situation and creating a detailed budget.
Increasing your retirement contributions to the maximum allowed in employer-sponsored plans.
Taking advantage of catch-up contributions if you're 50 or older.

No matter why you're behind on your retirement savings journey, the important thing is to start now.

Don't know where to start? You've come to the right place.

It's natural to have questions about saving for retirement. How much will I need? What year will I retire? The good news is that you don't need to figure everything out right now. The most important thing to do is get started. Here are some of the best ways to save for retirement:

Assess how much you need to save for retirement. Our retirement income calculator is an excellent tool to help you get started.
Find the right kind of account for your savings. Employer plans, IRAs, and taxable accounts can all be used to help you reach your retirement savings goals.
Open an account online.
Consider establishing an asset allocation plan. How you choose to divide your investments among different assets like stocks, bonds, and cash depends on when you plan to retire and your ability to tolerate risk.
Fund your new account and set up a small automatic contribution.