Average and Median 401(k)
Account Balances in 2023

Analysis

401(k) account balances recovered in 2023, after a dip the previous year

The average 401(k) account balance increased by 8.0% to $90,101, recovering from a 10.01% decrease in 2022, which ended with an average 401(k) account balance at $83,445.

What factors influence 401(k) account balances? The primary determinants are market performance of account investments, contributions from employees and employers, and account activities such as loans or withdrawals. However, on an aggregate level contribution rates and account activities tend to vary slowly over time, while market performance is the main contributor to year-over-year changes in account balances. This highlights the significance of long-term 401(k) saving to benefit from potential market upswings.

In 2023, market returns were high, pushing account balances higher. An index that tracks returns on assets held in 401(k) accounts, American Trust Custody’s 401(k) Composite Benchmark, posted a 17.4% gain in the year. That was the highest return for the benchmark since 2019, when the benchmark had 21.2% gains.

The typical or median 401(k) account ended the year with a balance of $18,273

The median 401(k) account balance, indicative of the typical American 401(k) account, grew by 7.6% over the year, reaching $18,273, up from $16,991 at the end of 2022. This growth marks the fifth consecutive year that median balances have hovered between $17,000 and $19,000, reflecting market volatility over the past three years and stickiness in median balances, which are pulled down by shorter-tenured accounts, as well as the new accounts that enter the 401(k) pool every year. Over the past five years, broad market indices saw gains in 2019, 2020, and 2021, a downturn in 2022, and a rebound in 2023.

Why did the median balance increase by only 7.6%, while the average balance saw a growth rate of 8.0%? Mathematically, the mean can grow faster than the median if a relatively small number of high values push the mean upward. In this instance, the effect could be driven by long-standing accounts that have accumulated significant balances, such as account balances exceeding $1 million.

For example, in a 2023 analysis of its 401(k) accounts, Fidelity reported that it found 378,000 “401(k) millionaires,” i.e., accounts with balances over $1 million. That is out of Fidelity’s large base of 45 million 401(k) accounts. But it’s easy to see how these 401(k) millionaires would push averages up across the population. This is similar to how when a very tall person enters a room, the average height of people in the room might increase by an inch or two, but the median height would remain relatively unchanged.

In the world of 401(k) accounts, the median 401(k) balance is held down by the more modest balances of younger professionals with shorter investment horizons in their 401(k)s, as well as those who save intermittently.

Despite the gains, 401(k) account balances remain below the 2021 peak

In concluding 2023 at $90,101, the average 401(k) account balance fell $2,101 short of the 2021 peak of $92,202. That said, the growth rate in the average balance for 2023 ended significantly ahead of the 5.1% growth observed in 2021.

As mentioned, the main driver of increased account balances comes when asset categories within 401(k) accounts experience notable annual gains, as they did last year. Major market indices, including the S&P 500, achieved double-digit growth, as did important 401(k) benchmarks. Calendar-year 2021 capped three years in a row of double-digit growth in the American Trust Custody’s 401(k) Composite Benchmark, accounting for the peak that year in average account balances.

It’s important to recognize that 401(k) performance does not directly correlate with stock market trends, as these retirement accounts typically diversify across various assets, including bonds and other securities. For that reason, market indices designed to reflect the performance of a typical 401(k) portfolio typically see returns that are lower than what is seen in equity indices during market upswings (although they also tend to see lower declines in downswings).

Additionally, at the margins, other factors impact average and median account balances. Increases in 401(k) withdrawal and loan activity, which often coincide with or follow market downturns, can exert gravity and pull down account balances. The effects can persist since relatively high withdrawal and lending activity in one year will lead to a lower base of funds on which market returns can act. Both Fidelity and Vanguard reported elevated levels of early withdrawals among their large 401(k) account populations in 2023, and it is certainly a phenomenon that was widespread during the year. This erosion or “leakage” of funds from 401(k) accounts results in lower average account balances at year’s end than market returns alone would predict.

Medians and averages obscure significant differences in 401(k) balances that are determined by factors such as account tenure

Population statistics like medians and averages tend to obscure diversity, and individual 401(k) accounts should not necessarily expect to see balances such as those headlining this report. Some accounts will have very different characteristics than what is captured in a median or average. There are various factors driving account balances that are only visible when looking at subsets of the 401(k) account population that share certain characteristics. 

Specifically, three important and interrelated factors drive the size of balances: the account’s tenure, the account holder’s age, and the account holder’s income. To start, millions of 401(k) accounts are opened each year, and these accounts obviously begin with low balances (and will tend to belong to younger savers). Continuing accounts will also have a mix of tenures. Some will have been held for just a few years, while other accounts will have decades under their belt. In investing, the amount of time an investment has been held is among the most important factors driving total returns, given the compounding that occurs over time. Finally, savers in their twenties will obviously tend to have shorter-tenured accounts. And they will also save differently from individuals in their forties.

Savers’ income also plays a role. High-income account holders, who will also skew toward the older side, will tend to sock away larger contributions each year than those with lower salaries. 

To put a spotlight back on two of these differences, we have estimated what the average balances would be for specific groups within the account population, according to account tenure and account holder age.

Average Account Balances Increase With Participant Age and Account Tenure

Estimated average 401(k) plan account balance by participant age and tenure, 2023.

Sources: Capitalize,  EBRI data. See Methodology for details.

Why 401(k) statistics in the media are not always representative of most US workers’ 401(k) account balances

To derive its estimates, Capitalize (a free, online 401(k) rollover service) compared its own aggregated, anonymized data alongside publicly-available data from asset managers like Fidelity and Vanguard. A critical source was the Employee Benefit Research Institute (EBRI), which maintains a database of some 11.5 million US 401(k) accounts, which is designed to accurately represent the broader US 401(k) account population.

This methodology sets this study apart from others that rely on data from single-institution samples. These samples often come from large organizations serving longer-tenured, higher-earning 401(k) participants, which might not represent the wider US 401(k) account-holder profile. Not to mention, many individuals have multiple accounts, and the broad pool of 401(k) accounts also includes “forgotten” or abandoned accounts.

Notably, studies from single institutions don’t claim to represent the entire 401(k) population. However, media reports on these studies frequently omit details about their methodology and limitations. This omission can lead to misconceptions about the average 401(k) balances, which may seem higher than they actually are without the context provided by more inclusive studies.

Methodology

Key sources

The following sources were critical to our analysis: 

• Employee Benefit Research Institute (EBRI) research on its 401(k) database¹ 
• Vanguard’s annual “How America Saves” report, including average and median account balances
• Fidelity’s quarterly analysis of retirement savings behavior and account balances
• AmericanTCS 401(k) Benchmark²

Estimate of average and median 401(k) balances

The Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) collect annual data on millions of 401(k) plan participants. This 401(k) Database describes itself as the “largest, most representative repository of information about individual 401(k) plan participant accounts.” In 2020, the last year for which detailed data is publicly available, this database includes information about 11.5 million plan participants, in more than 76,507 employer-sponsored 401(k) plans, holding $1.0 trillion in assets. This represents 19 percent of the universe of 401(k) plan participants, according to EBRI/ICI, and covers plans of different sizes from large enterprises to small businesses. 

The EBRI/ICI data serves as the starting point for analyzing the annual average and median 401(k) balances for a representative cross-section of 401(k) account holders. This series ends in 2020, but for the years for which it is available (each of the years from 2012 to 2020), the EBRI/ICI data is the best available snapshot of 401(k) accounts as a whole. In analyzing the EBRI data, we compared it to a similar series. Namely, we compared annual average and median 401(k) balances from the EBRI/ICI series to comparable series from Fidelity and Vanguard. This analysis revealed that the EBRI/ICI data shows significantly lower average and median 401(k) balances at the end of each year than accounts in the Fidelity and Vanguard 401(k) dataset. Our hypothesis is that Vanguard and Fidelity, while each encompassing millions of 401(k) accounts, represent the 401(k) account activity of longer-tenured, higher-income savers whose employers work with Vanguard and Fidelity. Bolstered by the statistical rigor of EBRI/ICI, and the fact that Capitalize’s own data for its account holder population points to lower account balances, we elected to use the EBRI/ICI series as the anchor of our work to estimate the average and median account balances for the years 2021 to 2023. 

We then estimated the growth in the average and median numbers over the past three years by: 

1. We used the AmericanTCS 401(k) benchmark to calculate preliminary predicted year-end 401(k) average account balances for available years in the EBRI and Fidelity historic data series. In other words, for the historical data available, we used the benchmark to calculate predicted 401(k) average balances when going solely off the market benchmark, ignoring other factors influencing balance changes over the course of the year. 
2. Applying the TCS 401(k) benchmark, we were able to observe that the predicted 401(k) average balance for each year falls within a relatively tight band around the actual results for the average 401(k) balance at the end of the year in the historical data.
3. By analyzing the difference or “delta” between actual historical data on annual average 401(k) balances and what is predicted by applying only the market benchmark, we were able to derive a formula for adjusting the numbers predicted by the benchmark to match the historical series. With this formula, we can fit the average balances predicted by the 401(k) benchmark returns to correspond with the actual data in the EBRI and Fidelity series in 2020 and prior years. Seeing this, we proceeded with our work to estimate average annual balances for the three years in which there is no EBRI/ICI data available.
4. As mentioned above, prior analysis had shown us that the EBRI/ICI data would be closer to how the broader 401(k) population behaves, so at this point we discarded the Fidelity series and focused on the EBRI/ICI data as the reference. The next step was to extend the EBRI/ICI series and project average annual 401(k) balances for the years 2021 to 2023. To do so we used the formula derived in Step 3, in order to account for the additional factors — other than market returns — affecting changes in average annual balance from year to year. As mentioned in the article, these factors include loan and withdrawal activity, as well as employer and employee contributions. 
   1. In essence, the adjustment is an inference, based on past data, on what average annual balances will be in 2021 to 2023 given the historical relationship between market returns, the 401(k) balances these predict, and the actual year-end average 401(k) account balances in the past. 
   2. Specifically, the formula takes into account baseline adjustments needed to fit the market-predicted average annual balances closer to what the historical data has shown in the years 2016 to 2020. The formula captures a tendency in the historical backtests for the delta between predicted vs. actual amounts to behave differently based on a few important factors. These include whether the year is one with negative vs. positive market returns, the magnitude of the market returns in the year, and some persistence of statistical effects from year to year.
   3. For example, the formula takes into account the fact that in backtests the actual average balances as predicted by the 401(k) market benchmark are significantly higher than the historical actual annual average balances in the EBRI 401(k) data, in cases where the benchmark return is positive for the year. This relationship is then flipped in years when the benchmark has a down year. 
5. After generating the average annual balance estimates for 2021 to 2023, based on the formula developed in Step 4, we used a similar method to estimate median balances for each year. For median balances, there was a new emphasis on the trailing eight-year historical ratio between averages and medians in 401(k) account balances, as well as shifts in that ratio. 
6. Finally, we extended the method in Step 4 to predict average annual balances by account age and income. In this instance, we relied on the difference between the EBRI/ICI 2020 average annual 401(k) balance and our estimated average balance for 2023 and applied that to each of the tenure and income brackets to show how these numbers would play out if the relationship between age and tenure brackets documented by EBRI/ICI in 2020 carries over consistently into 2023. 
7. We believe our estimates are conservative and well-supported because we were able to use the same formulas to accurately predict average account balances in historical backtests, where we knew what the actual year-end average balance would be for each year. Intuitively, this finding makes sense, as the non-market factors affecting average 401(k) balances — loan/withdrawal activity, and contributions — are less volatile than market returns and tend to change in more regular increments when they do shift. It follows then that such factors would be tractable for an adjustment formula and/or be washed out by other effects (such as the gravity of low-balance new accounts joining the pool each year). For example, in Vanguard’s “How America Saves” series, employee contributions as a percentage of income increased by an average of only .1 percentage point in each year from 2018 to 2022, going from 7.0% to 7.4%.

Footnotes