Based on my online news interests, my news feed often puts article headlines in front of me that are personal finance related. Examples include headlines like:
“The 5 Best Ways to Cut Your Grocery Bill”
“10 Ways to Save in 2022”
“The Best Retirement Account You’re Probably Overlooking”
“How Do You Compare? The Average 401(k) Balance By Age”
It’s this last headline that I want to key in on. You see, this article always seems to be formulaic and rather worthless to me. The author will break down age groups into their 20s, 30s, 40s, and so on to give you a picture of what a “normal” 401(k) balance is. You can then compare yourself to the other people in your peer group to see how you’re doing.*
The Problem With The Lists…
The problem with this is that the 401(k) is just one piece of the retirement puzzle. 401(k)s are (1) only in the US, (2) only used by people who have an employer that offers one, (3) each person can have multiple accounts, and (4) they’re not the only retirement savings vehicle!
Additionally, the article is usually just a synopsis of data released by a major 401(k) provider like Fidelity, Vanguard, or BlackRock of all of their 401(k) accounts. A recent article by the hiring company Indeed analyzed data provided by the US Bureau of Labor Statistics that showed the average employee stays at a job for just over four years.
If a worker leaves an employer after four years, usually they haven’t built up a massive account balance in their 401(k) account.
Por Ejemplo
Take Studebaker. His friends call him Studebaker, though you would think they could come up with a better nickname with a name like that to work with. Chalk it up to a lack of imagination, I guess.
Anywho, Studebaker has worked for four different employers in the 15 years since graduating college—each with their own 401(k) plan. With his first two employers, he contributed enough to his 401(k) to take advantage of the full employer match. He then decided with his third employer to get serious about his retirement savings and decided to max out contributions to his 401(k) for four straight years. Now with his fourth employer for only a year, Studebaker’s four 401(k)s have balances that look like this:
| Total Account Balance | |
| 1st Employer 401(k) Account: | $37,500 |
| 2nd Employer 401(k) Account: | $45,000 |
| 3rd Employer 401(k) Account: | $105,000 |
| 4th Employer 401(k) Account: | $21,000 |
| TOTAL 401(k) BALANCES: | $208,500 |
The median balance of the four accounts: $41,250
The average balance of four accounts: $52,125
The balances in these accounts might be individually modest, but the sum of the accounts tells a much different story. If you were to take the article’s data at face value without thinking any deeper about the data, you might come away with thinking that a whole lot of people in their 30s only have a total savings of $40k-50k.
How to Do It Better
A better measure for articles like this to use is to look at total retirement account savings. This would include all of peoples’ disparate accounts to give a good apples-to-apples comparison.
The best measure, however, would be to look at total savings. This would include brokerage accounts, retirement savings accounts, IRAs, and whatever else people might have set aside in savings.
I can see how acquiring the data to tell a story with total retirement or total account savings might be difficult. The authors might have to [*gasp*] perform a survey, instead of just mining data from a financial report of Fidelity retirement account balances! That would also take more time, money, effort, and an understanding of how to properly administer surveys and report findings.
It’s Really The Least They Could Do
Maybe the authors of these articles could demonstrate that they have a modicum of curiosity about the subjects they write about. An easy way to make the “Average 401(k) Balance” article into a slightly-less-sucky one might be to compare how an age group’s savings compares to the same age group five or ten years prior to show how an event might have had an impact on retirement balances. Or, perhaps compare the age group’s savings to the previous generation of savers at that age.
Literally, anything would be better. C’mon personal finance writers!
So instead we’re stuck with mediocre-at-best articles like “How Do You Compare? The Average 401(k) Balance By Age.” I’d like to petition the powers that be to rename all of these articles “I’m a Lazy Writer Who Wants Click-Baitey, Useless Articles!”
At least it’d be honest.
* This is my secret motivation for reading this particular kind of article—to determine how much wealthier I am than my peer group. Honestly, isn’t that why you would click to read? To feel self-assured, etc. I’m not bragging here. The balances are always dreadfully low. That’s mostly because we Americans don’t do a great job of saving…
Excellent! We are perfect examples to show that 401(k)s alone don’t provide much insight. Separate savings, SIMPLE accounts, taxable investment accounts, etc. can add up to a pile of money.