Retirement Planning Opportunities If You’re in the Top 20% of Savers (Ages 55–70)
If you’ve ever Googled “retirement savings by age,” you’ve probably seen those benchmark numbers that either made you panic or feel like you’re crushing it. But here’s the thing – both reactions might be completely wrong.
Understanding retirement savings by age is something many people get hung up on, but the reality is that these average numbers rarely tell the complete story. Today, we’ll dive into real data from major financial institutions and explain why, if you’re reading this, you’re probably already in the top tier of savers. And if you’re in that top tier, we’ll discuss specific planning opportunities to help you optimize your retirement.
What the Average Retirement Savings Data Really Shows
Let’s start by looking at what the major studies actually reveal about retirement account balances across different age groups.
401k Balance by Age: Fidelity’s Latest Numbers
Fidelity releases quarterly benchmarking studies that track average retirement account balances by age. Their data shows that for people in their peak earning years (55-70), the average 401(k) balance hovers around $250,000.
But here’s the problem with this data: it only includes accounts held at Fidelity. It completely excludes external accounts, creating a major blind spot. There are no taxable brokerage accounts, no HSAs, and no retirement accounts held at other institutions, such as Vanguard or Schwab. This means Fidelity’s numbers aren’t really representative of the entire U.S. retirement landscape – especially not for people who are serious about their financial planning.
The Federal Reserve’s Complete Picture
The Federal Reserve’s Survey of Consumer Finances, conducted every few years, gives us the closest thing to a national financial scoreboard. The 2022 data reveals some eye-opening statistics.
For households in the 55-64 age range:
- About 8% have retirement account balances between $500,000 and $1 million
- Roughly 9% have over $1 million in retirement accounts
- This means approximately 17% of U.S. households in this age group have retirement savings exceeding $500,000
If you’re reading this article and have accumulated at least $500,000 in retirement accounts by your late 50s or early 60s, you’re already in the top 20% nationally. Many readers are likely in that top 10% tier with over a million dollars saved.
The Fed’s survey includes a broad sample of American households – from lower wealth to middle class to high net worth families. Many of the households surveyed may have very little, if any, assets in 401(k)s or IRAs, which skews the averages significantly lower.
Empower’s More Complete Data Set
Empower’s data provides both average and median retirement account balances, which matters because averages can be skewed by ultra-high savers with multiple seven-figure accounts.
For people in their 50s and 60s, Empower shows:
- Average retirement account balance: roughly $1 million
- Median balance: about 50% of that average
What makes Empower’s data more valuable is that it doesn’t just include accounts held directly with them. It also incorporates retirement accounts imported through their personal dashboard tool. If someone has accounts at Fidelity, Vanguard, or other institutions, those balances get aggregated into the study, making it more representative of people who actively manage their finances across multiple platforms.
However, even Empower’s data has limitations – it still doesn’t include other retirement assets like taxable brokerage accounts, business investments, or real estate.
Why You’re Probably Not Average
Here’s the reality: if you’re actively researching retirement savings by age and reading detailed financial content, you’re already demonstrating behavior that puts you in a completely different category than the “average” American saver.
The average retirement savings by age data includes everyone, including people who have never opened a 401(k), those who cash out their retirement accounts when changing jobs, and households that prioritize other financial goals over retirement savings.
But you’re different. You’re likely someone who:
- Has built substantial retirement account balances
- Maintains accounts across multiple institutions
- Has diversified beyond just retirement accounts into taxable investments
- Owns real estate or business assets not captured in these studies
Someone might have $400,000 in a 401(k), but another $1-2 million in taxable brokerage accounts or $3 million in real estate investments. If you’re only comparing retirement accounts, you’re missing half the picture.
This is the key point: if you’re consuming this type of content, you’re probably already in that top 20% of households. You’ve likely saved at least $500,000, and many readers have accumulated seven figures or even multiple seven figures for retirement. You’re playing a completely different retirement game than the average American.
Essential Retirement Planning Strategies for Top-Tier Savers
When you’re in the top tier of savers, your biggest risk isn’t running out of money – it’s retirement planning inefficiency. Here are the critical strategies you need to consider:
Tax Planning: Your Biggest Opportunity
Taxes can actually be one of your biggest expenses in retirement – often ranking as the number one, two, or three largest annual expenses for retirees.
Large pre-tax account balances mean large future required minimum distributions (RMDs). These large RMDs can potentially push you into higher income tax brackets, trigger higher taxes on Social Security income, increase capital gains rates, and activate other hidden taxes. These tax hits compound over time.
If you retire early, you may have lower income years before RMDs kick in at age 73 or 75. This window represents one of the best tax planning opportunities of your lifetime–what’s called the “Roth conversion window.”
Maximizing Roth Conversion Strategies in Early Retirement
During your early retirement years, before RMDs begin, you have the opportunity to strategically convert pre-tax retirement funds to Roth accounts. This means paying taxes now at potentially lower rates to minimize the impact of those ballooning RMDs later.
Roth conversion strategies can also help you:
- Minimize IRMAA surcharges (hidden taxes on Medicare premiums based on income)
- Make Social Security income more tax-efficient
- Create tax-free legacy assets for your heirs
Once this conversion window closes, it shuts for good, making this timing critical for long-term tax efficiency.
Optimizing Your Retirement Withdrawal Strategies
When you have substantial assets across multiple account types–taxable accounts, tax-deferred accounts, and tax-free accounts–the order you withdraw money matters enormously for the longevity of your retirement plan.
The classic approach follows this sequence:
- Taxable accounts first
- Tax-deferred accounts second
- Tax-free accounts last
This default strategy makes sense for many people, but it’s not always optimal. Sometimes it makes more sense to tap Roth accounts first and let tax-deferred accounts continue compounding. Other times, a multi-pronged approach works best–taking baseline distributions from taxable accounts while filling remaining income needs from tax-deferred accounts, even before RMDs begin.
The key insight: retirement withdrawal strategies shouldn’t follow a one-size-fits-all approach. Each year brings a new tax situation that needs to be evaluated and optimized based on your specific circumstances.
Investment Strategy: Risk Capacity vs. Risk Tolerance
Most retirees and many financial advisors focus solely on risk tolerance–how aggressive you feel comfortable being emotionally. But for higher net worth households, we need to discuss something different: risk capacity.
Understanding the Difference
Risk tolerance is emotional and psychological. It’s about how you feel when the market drops 20%. Do you panic? Can you sleep well at night? Can you stay disciplined?
Risk capacity is different – it’s not about feelings, it’s about what your plan can mathematically survive. Can you afford to take on risk in retirement?
Here’s the counterintuitive part: a retiree with a smaller portfolio may actually have less risk capacity than someone with a larger balance.
A Real-World Example
Consider a retiree with $500,000 who needs $30,000 annually (6% withdrawal rate). If the market drops 25%, their portfolio becomes $375,000, but they still need that $30,000. Now their withdrawal rate jumps to 8% – entering the danger zone where retirement plans can fail due to the sequence of returns risk.
Compare this to someone with $2 million who needs $80,000 annually (4% withdrawal rate). If their portfolio drops 25% to $1.5 million, their withdrawal rate only increases to 5.3%. They have margin for error. They can reduce withdrawals, skip inflation adjustments, rebalance, or even take advantage of the downturn.
This is risk capacity: how much volatility can your plan absorb before forcing you to make bad financial decisions?
Where You Hold Investments Matters
Asset location is different from asset allocation. Asset allocation is what you’re invested in. It’s your mix of stocks, bonds, real estate, and cash. Asset location is where you hold those investments.
When you have substantial balances across taxable, tax-deferred, and tax-free accounts, where you locate specific investments can significantly impact your after-tax returns.
The Tax Drag Problem
Taxable accounts face ongoing tax drag. Investments may pay quarterly dividends, generate interest income, or distribute capital gains even when you’re not selling anything. When you’re in higher tax brackets, this drag becomes significant and represents one of the most overlooked ways wealth gets eroded–not from market performance, but from unnecessary taxes.
If your taxable account holds high-yield bonds, REITs, and high-turnover funds, you might pay substantial taxes annually even if you’re not spending that income. Meanwhile, your IRA and Roth accounts might be better locations for these less tax-efficient investments.
The goal of asset location is simple: ensure your taxable accounts aren’t dragging down your net after-tax returns. You don’t just need good performance. You need good after-tax performance. It’s not about what you earn; it’s about what you keep.
Legacy Planning for High-Net-Worth Families
If you’re in the top tier of savers, there’s a good chance you won’t spend down all your assets, even if your goal is to “die with zero.” This means you’re optimizing not just for lifetime income, but also for legacy–specifically, tax-efficient legacy.
This becomes especially important if your heirs are high earners themselves: doctors, entrepreneurs, attorneys, or other professionals. What you leave behind matters significantly.
Leaving a pre-tax IRA or 401 (k) to high-income beneficiaries creates a different tax impact than leaving a Roth account or a taxable brokerage account. The most effective planning involves being strategic about which assets to spend aggressively during your lifetime versus which to preserve for beneficiaries.
The Real Takeaway for Top-Tier Savers
If you’ve built substantial wealth and find yourself in the top 20% of U.S. households, your retirement plan is no longer about chasing returns or worrying about having “enough” money. Instead, your focus should shift to:
- Maximizing retirement plan efficiency
- Controlling the timing and tax impact of distributions
- Minimizing lifetime taxes through strategic planning
- Managing Medicare thresholds and IRMAA surcharges
- Optimizing Social Security income timing and taxation
- Taking advantage of Roth conversion windows
- Planning for tax-efficient legacy transfer
Once you’ve done the hard part–saving and investing to reach financial independence–the game becomes about keeping more of what you’ve built. The strategies that got you to this point aren’t necessarily the same ones that will optimize your wealth throughout retirement.
The Bottom Line
Stop comparing yourself to average retirement savings by age. If you’re actively planning and have accumulated substantial assets, you’re already playing in a different league. Your focus should be on advanced strategies that maximize the efficiency of the wealth you’ve built, not on whether you’re “keeping up” with benchmarks that don’t reflect your reality.
Remember, retirement planning for high-net-worth individuals isn’t about accumulating more. It’s about optimizing what you have for the best possible outcomes throughout your retirement years and beyond.
At Imagine Financial Security, we help individuals over 50 with at least a million dollars saved navigate these complex retirement decisions. If you are looking to
- Maximize your retirement spending
- Minimize your lifetime tax bill
- Worry less about money
You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.
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This is for general education purposes only and should not be considered as tax, legal, or investment advice.
