The stock market had a pretty volatile third quarter this year. As a result, 401(k) balances were down at the end of the third quarter of 2023 compared to the second quarter, reports Fidelity.
As of the end of September, the average 401(k) plan saver had $107,700. That's a drop from $112,400 during the second quarter of the year, but it's a nice improvement from the third quarter of 2022, when the average 401(k) sat at $97,200.
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If you're saving for retirement in a 401(k), your balance may or may not be higher than the average. And you know what? It almost doesn't matter.
Your goal should be to build up your balance and not really worry about what other people have saved. And there are two key steps you can take to grow your 401(k) nicely.
1. Make sure to claim your full employer match
Many companies that offer their employees a 401(k) also match contributions to some degree. It pays to take advantage of that match in full so you're able to snag the most free cash for your retirement plan.
In fact, 401(k) plan balances rose roughly $10,000 between Q3 of 2022 and the third quarter of 2023. Now, imagine your employer will match up to 100% of your first $5,000 in 401(k) contributions. You could conceivably raise your balance by $10,000 in a single year by putting in only $5,000.
2. Make sure you're investing efficiently
The money in your 401(k) plan shouldn't just sit in cash. Rather, it's important to invest it in a savvy manner.
Now one disadvantage 401(k) savers have is not being able to choose individual stocks for their retirement portfolios. Rather, a 401(k) plan will generally limit you to a number of different funds.
But it's essential to choose yours wisely.You may be inclined to fall back on a target date fund because it reads like an easy choice. But target date funds tend to err on the side of investing conservatively. The result? Less growth for you.
Also, target date funds tend to charge expensive fees. Those could eat away at your 401(k)'s returns over time.
And speaking of fees, actively managed mutual funds aren't really a bargain in that regard, as they, too, are notorious for charging high fees, also known as expense ratios. To keep your 401(k) investment fees low without compromising on performance, you may want to look to broad market index funds that are passively managed.
It's encouraging to see that 401(k) plan balances are up from a year ago despite a modest dip from the second quarter of the year. But whether your balance is more than the average $107,700, lower, or roughly the same, your best bet is to focus on a savings and investing strategy that allows your balance to grow nicely over time.
You can worry less about how your plan compares to the average saver's, since other people likely aren't going to come to your rescue and pick up the tab for your bills in retirement. That's all you.
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