Are Your Retirement Savings Ahead of the Curve?

It's difficult to determine exactly how much to save for retirement. Some people pick a round number, such as saving 10% or 15% of their salary, while others use an external cue, such as the amount of money that will be matched by an employer.

You might wonder whether you are saving enough to fund the retirement lifestyle you desire. "Ultimately, how much income do you think you'll need to replace from year to year to pay for your retirement lifestyle?" says Charlie Bolognino, a certified financial planner at Side-by-Side Financial Planning in Plymouth, Minnesota. "Don't forget to budget in everyday expenses, annual health care costs and recurring purchases, such as car replacements."

Here are some benchmarks that will help you understand if you are well on your way to accumulating a substantial nest egg for retirement.

Consider the Average 401(k) Balance By Age

The average 401(k) savings rate was 7% of pay in 2020, according to Vanguard 401(k) data. The average 401(k) account balance is $129,157. However, the amount the average person is able to save and accumulate increases considerably as people age.

"The amounts they will need to save will vary greatly ... for someone who wants a lavish retirement, replete with a mansion at the beach, versus someone who is interested in a more modest idea of their golden years," says Patrick King, a certified financial planner and founder of Prana Wealth in Atlanta. "If you're having a hard time deciding what retirement (savings rate) is realistic for you, start by saving 10% of your income."

Check out whether you are beating the 401(k) averages for your age group:

Under age 25

Average 401(k) account balance: $6,718

Average 401(k) savings rate: 5%

Age 25 to 34

Average 401(k) account balance: $33,272

Average 401(k) savings rate: 6.3%

Age 35 to 44

Average 401(k) account balance: $86,582

Average 401(k) savings rate: 6.7%

Average 401(k) account balance: $161,079

Average 401(k) savings rate: 7.4%

Average 401(k) account balance: $232,379

Average 401(k) savings rate: 8.7%

Average 401(k) account balance: $255,151

Average 401(k) savings rate: 9.2%

[ Read:New 401(k) Contribution Limits for 2021. ]

Aim to Max Out Your 401(k)

A retirement goal worth aspiring to is maxing out your 401(k) plan. The 401(k) contribution limit is $20,500 in 2022. Workers age 50 and older can make catch-up contributions of up to an additional $6,500 for a maximum contribution of $27,000 in 2022. Fully funding your 401(k) allows you to get the best possible tax deduction on the money you save for retirement. Your traditional 401(k) contributions won't be taxed until they are withdrawn from the account.

However, only 12% of 401(k) participants maxed out their 401(k) in 2020, according to a Vanguard analysis of 1,700 401(k) plans with 4.7 million participants. Most people who max out their 401(k) earn more than $150,000 per year and also tend to have more years on the job and be closer to retirement age.

Unsurprisingly, it's easier to save for retirement if you earn a large salary. Those earning $150,000 or more had an average 401(k) account balance of $354,569, more than twice as much as the average of $121,570 saved by those earning $75,000 to $99,999, Vanguard found.

"Start small and increase your contribution by 1% to 2% each year until you reach the maximum," says Kayse Kress, a certified financial planner with Physician Wealth Services in San Diego. "Always make sure you are contributing enough to take advantage if your employer also provides a matching contribution."

[Read:A Guide to 401(k) Vesting. ]

Strive to Hit $1 Million in 401(k) Savings

Since 401(k) contributions are limited each year, it takes decades of diligent saving and solid investment returns to build up a large retirement account balance. Those who save consistently over many years are often able to accumulate impressive retirement account balances. For example, those with 15 or more years on the job have an average 401(k) account balance of $505,353, over four times as much as the average balance of $126,083 among all 401(k) participants in 2021, according to an analysis of 23,700 Fidelity workplace retirement accounts with 20.2 million participants.

In contrast, workers who change jobs might leave a small balance in their old 401(k) plan or roll their retirement savings into an IRA, so job hoppers often don't have all their wealth in a single 401(k). Gaps in employment, a hiatus from saving for retirement and waiting periods to join a new employer's 401(k) plan also result in smaller account balances.

[Read:How Much Should You Contribute to a 401(k)? ]

Remember to Make Catch-Up Contributions

Workers age 50 and older are eligible to make catch-up contributions to 401(k) plans of up to $6,500 more than younger employees. A catch-up contribution involves saving between $20,500 and $27,000 in your 401(k) plan in 2022. However, only 14.3% of eligible 401(k) participants made catch-up contributions in 2020, according to a T. Rowe Price Retirement Plan Services analysis of 674 401(k) plans with over 2 million participants.

Older 401(k) participants often increase their savings rate as they approach retirement, T. Rowe Price found. "Set up your own parameters for when you'll increase your savings rates," says Jared Paul, a certified financial planner and founder of Capable Wealth in Albany, New York. "The easiest time to do so is when you get a promotion or raise. You're going to have more money coming in than you're used to, so you obviously have extra money to save."