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Investing is a lot like riding a roller coaster. Some love the thrill of taking big risks with the possibility of getting even bigger rewards. Others get anxious with every market dip and downturn.

Knowing yourself and your risk tolerance is an essential part of investing. Of course, it’s good to have a diversified portfolio built with your financial goals in mind. Still, the products and strategies you use should ideally fall within guidelines that make you feel comfortable—emotionally and financially—when things get rough.

Otherwise, you might resort to knee-jerk decisions—selling at a loss or abandoning your plan to save—that could cost you even more.

What is Risk Tolerance?

Risk tolerance is the amount of risk an investor is willing to take to achieve their financial goals. Risk tolerance level comprises three different factors: risk capacity, need, and emotional risk.

Recommended: What Every New Investor Should Know About Risk

Risk Capacity

Risk capacity is the ability to handle risk financially. Unlike your emotional attitude about risk, which might not change as long as you live, your risk capacity can vary based on your age, your personal financial goals, and your timeline for reaching those goals. To determine your risk capacity, you need to determine how much you can afford to lose without affecting your financial security.

For example, if you’re young and have plenty of time to recover from a significant market loss, you may decide to be aggressive with your asset allocation; you may invest in riskier assets like stocks with high volatility or cryptocurrency. Your risk capacity might be larger than if you were older and close to retirement.

For an older investor nearing retirement, you might be more inclined to protect the assets that soon will become part of your retirement income. You would have a lower risk capacity.

Additionally, a person with a low risk capacity may have serious financial obligations (a mortgage, your own business, a wedding to pay for, or kids who will have college tuition). In that case, you may not be in a position to ride out a bear market with risky investments. As such, you may use safer investments, like bonds or dividend stocks, to better protect your portfolio.

On the other hand, if you have additional assets (such as a home or inheritance) or another source of income (such as rental properties or a pension), you might be able to take on more risk because you have something else to fall back on.

Recommended: Savings Goals by Age: Smart Financial Targets by Age Group

Need

The next thing to look at is your need. When determining risk tolerance, it’s important to understand your financial and lifestyle goals and how much your investments will need to earn to get you where you want to be.

The balance in any investment strategy includes deciding an appropriate amount of risk to meet your goals. For example, if you have $100 million and expect that to support your goals comfortably, you may not feel the need to take huge risks. When looking at particular investments, it can be helpful to calculate the risk-reward ratio.

But there is rarely one correct answer. Following the example above, it may seem like a good idea to take risks with your $100 million because of opportunity costs — what might you lose out on by not choosing a particular investment.

Emotional Risk

Your feelings about the ups and downs of the market are probably the most important factor to look at in risk tolerance. This isn’t about what you can afford financially — it’s about your disposition and how you make choices between certainty and chance when it comes to your money.

Conventional wisdom may suggest “buy low, sell high,” but emotions aren’t necessarily rational. For some investors, the first time their investments take a hit, fear might make them a little crazy. They may lose sleep or be tempted to sell low and put all their remaining cash in a savings account or certificate of deposit (CD).

On the flip side, when the market is doing well, investors may get greedy and decide to buy high or move their safe investments to something much more aggressive. Whether it’s FOMO trading, fear, greed, or something else, emotions can cause any investor to make serious mistakes that can blow up their plan and forestall or destroy their objectives. A volatile market is a risk for investors, but so is abandoning a plan that aligns with your goals.

And here’s the hard part: it’s difficult to know how you’ll feel about a change in the market — especially a loss — until it happens.

Three Levels of Risk Tolerance

Generally, investors fall into one of three categories regarding investment risk tolerance: aggressive, moderate, and conservative.

While the financial industry tends to use labels like conservative, moderate, or aggressive to describe risk in the context of investments and investors, those terms are subjective. What they mean to you may differ from what they mean to someone else.

It can put things into better perspective to think of a potential loss in terms of dollars, not percentages. A 15% loss might not sound so bad, but if you think of it as having $10,000 one month and $8,500 the next, that’s a little more daunting.

Aggressive Risk Tolerance

People with aggressive risk tolerance tend to focus on maximizing returns, believing that getting the largest long-term return is more important than limiting short-term market fluctuations. If you follow this philosophy, you will likely see periods of significant investment success that are, at some point, followed by substantial losses. In other words, you’re likely to ride the full rollercoaster of market volatility.

Moderate Risk Tolerance

An investor with a moderate risk tolerance balances the potential risk of investments with potential reward, wanting to reduce the former as much as possible while enhancing the latter. This investor is often comfortable with short-term principal losses if the long-term results are promising.

Conservative Risk Tolerance

A person with conservative risk tolerance is usually willing to accept a relatively small amount of risk, but they truly focus on preserving capital. Overall, the goal is to minimize risk and principal loss, with the person agreeable to receiving lower returns in exchange.

Assessing Your Risk Tolerance for Retirement Investing

There are steps you can take and questions to ask yourself to determine your risk tolerance for retirement investing. Once you know your risk preference, you can open a retirement account with confidence. Both low risk tolerance and high risk tolerance investors may want to walk through these steps to ensure they know what retirement investment style is right.

Matching your 401(k) risk amount to your personality traits can help you stick to your strategy over the long haul.

1.    What will your income be? If you expect your salary to ratchet higher over the coming years, then you may want to have a higher 401(k) risk level, as time in the market can help you recover from any losses. If you are in your peak-earning years and will retire soon, then toning down your risk could be a prudent move, since you don’t want to risk your savings this close to retirement.

2.    What will your expenses look like? If you anticipate higher expenses in retirement, that might warrant a lower risk level since a sharp drop in your assets could result in financial hardship. If your expenses will likely be low (and your savings rate is high), then perhaps you can afford to take on more retirement investing risk.

3.    Do you get nervous about the stock market? Those who cannot rest easy when stocks are volatile are likely in a lower-risk, lower-return group. But if you don’t pay much attention to the swings of the market, you might be just fine owning higher-risk, higher-return stocks.

4.    When do you want to retire? Your time horizon is a major retirement investing factor. The more time you have to be in the market, the more you should consider owning an aggressive 401(k) risk portfolio. Those in retirement and who draw income from a portfolio are likely in the low risk-tolerance bucket, since their time horizon is shorter.

The Takeaway

Each investor may have a unique level of risk tolerance, though generally, the levels are broken down into conservative, moderate, and aggressive. The fact is, all investments come with some degree of risk—some greater than others. No matter your risk tolerance, it can be helpful to be clear about your investment goals and understand the degree of risk tolerance required to help meet those goals.

Investors may diversify their investments into buckets — some safer assets, some intermediate-term assets, and some for long-term growth — based on their personal goals and timelines.

Ready to take steps toward your financial future? With SoFi Invest®, investors can set up an online brokerage account to trade stocks and exchange-traded funds (ETFs) with no commissions.

Find out how to get started with SoFi Invest.

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SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

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A 401(k) can be a valuable part of a retirement savings plan. But how much should you have saved in your 401(k) at different ages or career stages?

Charting the average 401(k) balance by age can help put your own savings in perspective. Seeing what others are saving in their 20s, 30s, 40s, and beyond can be a useful way to gauge whether you’re on track with your own retirement plans and what else you can do to maximize this critical, tax-deferred form of savings.

Keep reading to learn about these possible benchmarks and smart ways to handle common savings challenges people may face at different phases of life. After all, the point isn’t to see whether you measure up but to ensure you keep progressing toward your retirement goals.

Average 401(k) Balance by Age Group

Pinning down the average 401(k) account balance can be challenging, as only a handful of sources collect information on retirement accounts, and they each have their own methods for doing so.

Vanguard is one of the largest 401(k) providers in the U.S., with nearly 5 million participants. For this review of the average 401(k) balance by age, we’ll use data from Vanguard’s “How America Saves 2022” report . Specifically, we’ll look at the average and median 401(k) balances by age for savers in 2021.

Why look at the average balance amounts, as well as the median? Because there are people who save very little as well as those who have built up very substantial balances, the average account balance only tells part of the story. Comparing the average with the median amount — the number in the middle of the savings curve — provides a bit of a reality check as to how other retirement savers in your cohort may be doing.

Age Group	Average 401(k) Balance	Median 401(k) Balance
Under 25	$6,264	$1,786
25-34	$37,211	$14,068
35-44	$97,020	$36,117
45-54	$179,200	$61,530
55-64	$256,244	$89,716
65+	$279,997	$87,725
Source: Vanguard

Ages 35 and Younger

The average 401(k) balance for savers 35 and younger can be split into two groups:

•   Under age 25: $6,264

•   Ages 25 to 34: $37,211

Median 401(k) balances for both age groups are lower. The median balance is a dividing point, with half of savers having more than that amount saved for retirement in their 401(k) and the other half having less.

It makes sense that the under 25 group would have the lowest balances in their 401(k) overall, as they’ve had the least time to save for retirement. They’re also more likely to earn lower starting salaries versus workers who may have been on the job for 5 to 10 years. The youngest workers may not have as much income to put towards a 401(k).

Key Challenge for Savers

Debt often presents a big challenge for younger savers, many of whom may still be paying down student loan debt or who may have credit card debt (in some cases, both). How do you save for retirement when you want to pay off debt ASAP?

It’s a familiar dilemma, but not an insurmountable one. While being debt-free is a priority, it’s also crucial at this age to establish the habit of saving — even if you’re not saving a lot. The point is to save steadily (e.g., on a biweekly or monthly schedule) and, whenever possible, to automate your savings.

Then, when your debt is paid off, you can shift some or all of those payments to your savings by upping your retirement contribution.

Ages 35 to 44

•   Average 401(k) balance: $97,020

•   Median 401(k) balance: $36,117

The average 401(k) balance for workers in the 35 to 44-year-old group is $97,020. The median 401(k) balance for these workers is $36,117. That’s quite a gap! So what is a good average balance to have in your 401(k) by this point?

One rule of thumb suggests having three times your annual salary saved for retirement by the time you reach your 40s. So, if you’re making $100,000 annually, ideally, you should have $300,000 invested in your 401(k). This assumes that you’re earning a higher income at this point in life, and you can contribute more to your plan because you’ve paid off student loans or other debts.

Key Challenge for Savers

While it’s true that being in your late 30s and early 40s can be a time when salaries range higher — it’s also typically a phase of life when there are many demands on your money. You might be buying a home, raising a family, investing in a business — and it can feel more important to focus on the ‘now’ rather than the future.

The good news is that most 401(k) plans offer automatic contributions and the opportunity to increase those contributions each year automatically. Even a 1% increase in savings each year can add up over time. Take advantage of this feature if your plan offers it.

Ages 45 to 54

•   Average 401(k) balance: $179,200

•   Median 401(k) balance: $61,530

Among 45 to 54-year-olds, the average 401(k) balance is $179,200, while the median balance is $61,530.

The rule of thumb for this age suggests that you stash away six times your salary by age 50. So again, if you make $100,000 a year, you should have $600,000 in your 401(k) by your 50th birthday. Whether this is doable can depend on your income, 401(k) deferral rate, and overall financial situation.

Key Challenge for Savers

For some savers, these are peak earning years. But children’s college costs and the need to help aging or ailing parents are among the challenges savers can face at this stage. The great news is that starting at age 50, the IRS allows you to start making catch-up contributions. For 2022, the regular 401(k) contribution limit is $20,500 – but add in $6,500 in catch-up contributions, and you can save $27,000 annually in a 401(k).

While you may feel strapped, this could be the perfect moment to renew your commitment to retirement savings because you can save so much more.

Ages 55 to 64

•   Average 401(k) balance: $256,244

•   Median 401(k) balance: $89,716

The average 401(k) balance among 55 to 64-year-olds is $256,244. The median balance is much lower, at $89,716.

By this stage, experts typically suggest having eight times your annual salary saved. So going back to the $100,000 annual salary example from earlier, you’d need to have $800,000 tucked away for retirement by age 60.

Key Challenge for Savers

As retirement draws closer, it can be tempting to consider dipping into Social Security. At age 62, you can begin claiming Social Security retirement benefits to supplement money in your 401(k). But starting at 62 gives you a lower monthly payout — for the rest of your life. Waiting until the full retirement age, which is 66 or 67 for most people, will allow you to collect a higher benefit. And if you can wait until age 70 to take Social Security, that can increase your benefit amount by 32% versus taking it at 66.

Ages 65 and Older

•   Average 401(k) balance: $279,997

•   Median 401(k) balance: $87,725

The average 401(k) balance for those 65 and older is $279,997. The median balance is $87,725. So, is nearly $280,000 enough to retire, assuming you’re fully vested in your 401(k)?

Most experts would say no, unless you have other resources set aside for retirement. A pension plan, for example, or an Individual Retirement Account (IRA) could supplement your 401(k) savings. Investing in an annuity is also an option worth considering if you’re interested in creating a guaranteed income stream for retirement.

Key Challenge for Savers

Just because you turn 65, a common shorthand for “retiree,” doesn’t mean you’re at the end of the line or out of options. After all, 70 is the new 60 for many people these days, and you may be embarking on a new chapter in life, love, or business that could change your financial circumstances. The challenge here is to revisit your retirement plan and possibly speak with a financial professional, if you haven’t done so, to maximize all potential income streams and ways to save.

And don’t forget: A 2019 law eliminated the long-standing age limit of 70 ½ for making retirement contributions to your IRA (and Roth IRAs don’t have age limits). If life permits, you can (and should) keep saving.

401(k) Savings Potential by Age

Suppose an investor maxes out their 401(k) contribution of $20,500 annually beginning at age 25. Also, assume that the 401(k) has an average rate of return of 9.5%. By the age of 65, the investor will have contributed a total of $840,500 of their own money into their 401(k), but because of compounding returns, it could result in a 401(k) savings potential of nearly $9 million.

However, these figures are just hypotheticals to show the power of compounding returns in a 401(k) account. This does not account for fees, changes in contribution limits, a possible 401(k) employer match, or fluctuations in the market. Nonetheless, by contributing to a 401(k) early and often, investors may be able to build up a substantial retirement nest egg.

Hypothetical 401(k) Balance by Age, Assuming 9.5% Annual Rate of Return
Age	Total Contributions	Potential 401(k) Balance
25	$20,500	$20,500
30	$123,000	$156,187
35	$225,500	$369,790
40	$328,000	$706,052
45	$430,500	$1,235,409
50	$533,000	$2,068,743
55	$635,000	$3,380,610
60	$738,000	$5,445,802
65	$840,500	$8,696,908

Tips on Improving Your 401(k) Return

Getting the best rate of return on your 401(k) can help you to fund your retirement goals. But different things can affect your returns, including:

•   Investment choices

•   Market performance

•   Fees

Time is also a consideration, as the longer you have to invest, the more room your money has to grow through the power of compounding interest. If you’re interested in maximizing 401(k) returns, here are some things to keep in mind.

1. Review Your Contribution Rate

The more you contribute to your 401(k), the more growth you can see. If you haven’t checked your contribution rate recently, it may be a good idea to calculate how much you’re saving and whether you could increase it. At the very least, it’s a good idea to contribute enough to qualify for the full employer matching contribution if your company offers one.

As noted above, if your plan offers automatic yearly increases, take advantage of that feature. Behavioral finance studies have repeatedly shown that the more you automate your savings, the more you save.

2. Make Catch-Up Contributions If You’re Eligible

As mentioned, once you turn age 50, you have an opportunity to contribute even more money to your 401(k). If you can max out the regular contributions each year, making additional catch-up contributions to your 401(k) can help you grow your account balance faster.

3. Take Appropriate Risk

The younger you are, the more time you have to recover from market downturns and, thus, the more risk you can generally take with your investments. This is important to note as some risk is necessary to grow your portfolio. On the other hand, being too conservative with your 401(k) investments could cause your account to underperform and fall short of your goals.

4. Pay Attention to Fees

Fees can erode your investment returns over time and ultimately reduce the size of your nest egg. As you choose investments for your 401(k), consider the risk/reward profile and the cost of different funds. Specifically, look at the expense ratio for any mutual funds or exchange-traded funds (ETFs) offered by the plan. This reflects the cost of owning the fund annually, expressed as a percentage. The higher this percentage, the more you’ll pay to own the fund.

Creating or Reassessing Your Retirement Goals

If you’re still working on putting your retirement savings plan together, a 401(k) can be a good place to start. As you decide how much to save, ask yourself these questions:

•   What kind of lifestyle do I want to live in retirement?

•   When do I plan to retire?

•   How much of my income can I afford to save in a 401(k)?

•   Is there an employer match available, and if so, how much?

•   How much risk am I willing to take with 401(k) investments?

A retirement calculator can help you estimate how much you might need to save for retirement. Some calculators can factor in how much you’ve already saved to tell you if you’re on track with your goals.

💡 Recommended: When Can I Retire? This Formula Will Help You Know

It can be helpful to check in with your goals periodically to see how you’re doing. For example, you might plan an annual 401(k) checkup at year’s end to review how your investments have performed, what you contributed to the plan, and how much you’ve paid in fees. This can help you make smarter investment decisions for the upcoming year.

Improving Your Retirement Readiness

The best way to improve your retirement readiness is to start saving early and often. A good rule of thumb is to save and invest at least 10-15% of your income for retirement. The more you can save now, the greater chance it has to grow because of compounding returns.

But you want to save and invest your money wisely. Consider using a mix of investment vehicles, such as stocks, bonds, ETFs, and mutual funds, to help diversify your portfolio and minimize risk.

Additionally, you can make your money work harder for you by contributing to an IRA and a 401(k). These accounts offer tax advantages that can help you save more money for retirement.

Finally, be sure to monitor your retirement account balances and make adjustments as needed to ensure you are on track to reach your retirement goals.

The Takeaway

What is the average 401(k) balance by age? It’s a tricky question to answer as there’s no single source of information for these numbers. And it’s important to remember that the average 401(k) balance by age is just an average; it doesn’t necessarily reflect your ability to save for retirement.

That said, the average and median 401(k) balances noted above reflect some important realities for different age groups. It’s clear that some people can save more, others less — and it’s crucial to understand that many factors play into those account balances. It’s not simply a matter of how much money you have, but the choices you make. Every stage of life brings unique challenges that can derail your retirement, but with a bit of forethought and planning, it’s possible to keep your retirement on track.

To make the most of your retirement savings, you may want to roll over your old 401(k) accounts to a IRA rollover. SoFi makes the rollover process seamless and simple — with no need to watch the mail for your 401(k) check. There are no rollover fees, and you can complete your 401(k) rollover without a lot of time or hassle.

Easily manage your retirement savings with a SoFi IRA.

FAQ

How much do you need to retire?

Determining how much money you need to retire depends on your lifestyle, goals for retirement, and your specific cost of living.

How much should someone in their 60s have in their 401(k)?

The amount someone in their 60s should have in their 401(k) will vary depending on factors such as income, investment goals, and retirement plans. However, as a general guideline, it is recommended that individuals in their 60s aim to have at least eight to 10 times their salary saved in their 401(k) to ensure a comfortable retirement.

How much should I have in my 401(k) by age 30?

Ideally, you should aim to have saved at least the equivalent of your annual salary in your 401(k) by age 30. So, if you make $50,000 annually, you should try to have $50,000 in savings by age 30. This will help ensure that you are on track to retire comfortably.

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Photo credit: iStock/kate_sept2004

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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