Younger Workers Have Made Some Progress on Retirement Savings -- but There's More Work to Do

Key Points

• Saving for retirement at a young age is a great way to build up a nest egg.

• More years of saving equal more years of compounded returns.

• If you're struggling to find the money for retirement savings, there are different strategies you can use.

• The $23,760 Social Security bonus most retirees completely overlook ›

The reason it's important to save for retirement is simple. If you only have Social Security for income during your senior years, there's a good chance you'll end up miserable.

Social Security will replace about 40% of your pre-retirement earnings if you make an average wage. This means that if you don't have savings on top of those benefits, you may be looking at a 60% pay cut.

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Now it stands to reason that younger workers may not have as much savings as their older counterparts. After all, less time in the labor force means less opportunity to save money and build wealth.

Data from Vanguard shows that younger workers have actually made decent progress on retirement savings. However, there's still work to do.

It's not a negligible amount of savings

Each year, Vanguard compiles data on how much Americans have saved in the 401(k) plans it administers. In its most recent report, it found that workers ages 25 to 34 had an average retirement savings balance of $42,640 as of 2024, and a median savings balance of $16,255.

Now if you're wondering about the discrepancy between the two numbers, it's likely that a small subset of strong savers are pulling up the average. The median savings balance of $16,255 is likely the more representative number for the 25 to 34 age group.

Still, that's not a bad showing, especially for workers on the younger end of that spectrum. A lot of 20- and 30-somethings are still paying off mountains of student debt and trying to build emergency funds on relatively entry-level wages. So the fact that they've managed to do that well is impressive.

However, younger workers may still have some work to do to catch up to their older peers. Case in point: Vanguard reports that as of 2024, the average 401(k) savings balance among Americans 65 and over was $299,442, which is a far cry from $42,640.

How to boost your retirement savings when you're young

It's very important to begin funding a retirement account in your 20s or 30s. The more years you have to invest your money, the more you can take advantage of compounded returns.

If you're struggling to find money for your IRA or 401(k) plan, you can try the following:

• Work a side job temporarily, until your salary increases
• Try to snag your complete 401(k) match from your employer
• Spend on extras more mindfully
• Boost your job skills so you can line up a promotion -- and better pay

If your 401(k) or IRA balance is comparable to the average among 25- to 34-year-olds, or even the median, it means you're in decent shape. Remember, there are plenty of people your age with no retirement savings at all.

At the same time, it's in your best interest to supercharge your retirement savings when you're young. Not only might it take some of the pressure off later on in your career, but it could really set the stage for the retirement of your dreams.

The $23,760 Social Security bonus most retirees completely overlook

If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income.

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