It is always interesting to look at Vanguard’s most recent edition of “How America Saves.” And it is particularly interesting to get the numbers for 2022 – not a good year for the stock market.
The big difference between the median and the average is due to a small number of accounts that have really big balances. Average balances are more typical of long-tenured, more affluent participants, while the median balance represents the typical participant. Mean balances dropped from $141,500 to $112,600, and median balances from $35,300 to $27,400 – declines of 20% and 23%, respectively, from 2021.
Moreover, Vanguard tends to administer larger plans, so the plans are better designed than average and participants have higher incomes. In other words, it presents the best face of the 401 system.First, when participants change jobs, their 401 accounts may remain with their old employer, so individuals may have more than one 401 account. Second, 401 balances may be rolled over to an IRA, and financial services companies cannot track combined 401/IRA holdings.
But assume that the median 401/IRA holdings for households approaching retirement turn out to be twice the Vanguard number for individual participants – a ratio consistent with earlier years. That would mean that a household 55-64 with a 401 would have total 401/IRA balances of $142,000.