The average American age 65 and older with a 401(k) retirement account has $232,710 invested in it. 4 Strategies to Help You Beat the Average Before You Retire

How much money have you saved in your 401(k)? It’s largely a function of age, of course, and how much you’ve contributed to it over the years. How you invested that money is also a factor.

However, for people age 65 (or older) living in the United States, the average number is $232,710. That’s according to data compiled by mutual fund company and pension plan administrator Vanguard in its 2023 analysis of all plan participants. Not bad.

The point is, most people could do even better by the time they reach that retirement — or at least close to retirement — age. And it wouldn’t take a monumental feat or massive luck. The key is to do more of the little things better.

Here’s a closer look at the top four strategies that will help you beat the average until you’re ready to retire.

1. Start as early as possible

It’s such a simple premise that it almost doesn’t qualify as a strategy. It’s really more of a harsh truth.

However, it must be said that time is the main ally of investors. The sooner you start saving, the better off you’ll be. And much more than you could ever imagine.

A little number crunching makes for a staggering comparison. Assuming you match the S&P 500average annual return of 10%, a $10,000 investment in an S&P 500 index would be worth nearly $26,000 after 10 years. However, after 20 years, that $10,000 investment would be worth more than $67,000. If you let that money sit for 30 years, you’ll have more than $175,000. And a 40-year run? That initial $10,000 would be worth an incredible $452,000.

Most people don’t have an extra $10,000 stashed away when they first start their working years, but that’s not the point. The point here is simply to illustrate the power of compounding your growth as time goes on. Even if you can only start small, you should. As your income grows, you can contribute even more to building a nest egg.

2. Automate it

Most employers that offer 401(k) plans allow you to deduct a portion of your paycheck to deposit into your retirement account. In fact, for most employers, this is the only way to make contributions to your plan. Often it’s just a matter of filling out a form.

Don’t neglect to do this! It’s all too easy to decide, “I’ll do it next year” or “I’ll invest outside of a 401(k)” only to end up never doing it. Your employer probably makes it much more manageable than you would experience on your own.

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Along the same lines, don’t forget to actually invest the money that goes into your retirement account!

Many employers now use a default investment option — usually a simple index fund — for employees who do not request a specific fund allocation choice for their contributions. And in most cases this fund will do well. However, the one thing you don’t want to do is save money and then simply leave it in your account as cash, earning next to nothing.

3. At least ensure your company’s equal contribution

Not that you’ll necessarily want to stop there, but you should at least contribute enough of your own money to earn 100% of the amount of your contribution that your employer is willing to put into your 401(k).

This may vary from company to company. For most plans, a maximum of 6% of total salary is even eligible for an employer match, and even then the company can only match a portion of those contributions. Vanguard reports that average pay last year was just 4.6% of workers’ total median pay, to remind you.

Still, that’s hundreds if not thousands of dollars worth of free money, making a 100% return on some of the money you’re already saving.

4. Growth investing doesn’t have to mean aggressive risk

Last but not least, while you’ve probably been told that getting good growth requires being aggressive with your choices, that doesn’t necessarily mean you have to take excessive risks or be a very active investor. Indeed, the principle of “less is more” actually applies quite nicely when it comes to investing for retirement. That is, less trading and simpler strategies often lead to more gains than you would likely achieve with a more active or focused approach.

Data from Standard & Poor’s puts that idea into shocking perspective. Over the past 10 years, more than 87% of actively managed large-cap mutual funds available to US investors have actually outperformed the S&P 500. Why? Largely because the drive to beat the market causes people to make decisions that cause a fund to lag its overall performance. Even the pros aren’t very good at timing the market or a particular trade!

And it’s not just the 10-year timeframe. Most large-cap funds have outperformed the S&P 500 over the past five years, as well as over the past 15 years. Ditto for mid-cap and small-cap funds compared to their benchmarks.

That doesn’t mean it’s impossible to beat the market; certainly some people do. When your 401(k) options are limited to the offerings of a particular mutual fund family, you’re less likely to be able to do this. The highest-fee, highest-reward pick is often the easiest among index funds.