- The average 401(k) return in 2020 was 15.1%, according to Vanguard data.
- Over the past three years, the average return was 9.7%, and 11% over the past five years.
- To grow your account, get the full match, make sure your account is invested, and save more.
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However, last year was, overall, an exceptional year in the market — not every year yields the same return. Over more years cumulatively, the average return rate is a bit lower. And it’s worth remembering that this is just one of many years in the time it takes to save for a massive goal like retirement.
To get a better picture of the true average return, it’s worth looking at several years together.
The average 401(k) return over the past few years was lower than 2020 alone
Some years, the market does better than others, and it’s worth looking at how that figure changes over time.
Vanguard’s 2021 How America Saves report looks at the average annual 401(k) return, in one-, three-, and five-year cumulative increments. Here’s how the cumulative average 401(k) return looks over these years:
Over time, the ups and downs of the markets tend to even out. This is why investing for the long term is such a good idea — the ups and downs tend to smooth out when you stay invested over a long period.
How to grow your 401(k)
If you want to grow your 401(k), it might be simpler than you think. The best way to grow any account — contributing a set amount automatically — is built into a 401(k) as money comes out of each paycheck. But, there are other steps you can take to help your account grow.
- Make sure your account is invested: The money in your 401(k) isn’t always automatically invested. Money might sit as cash until it’s invested, missing out on potential time to grow in the markets. To make sure it’s invested properly, sign into your account and see if it’s growing — if not, you may need to choose to invest it in target-date funds or other investments to help it grow.
- Make sure you’re getting your full employer match: 401(k) plans have a special feature: Your employer can match the amount you contribute, up to a certain percentage of your income. Getting this match means getting free money, and that full amount can be a big boost to your retirement savings.
- Increase your contributions: If you haven’t considered increasing your contributions by a percentage or two, it’s worth doing. Even a small amount can add up over time, and make a big difference in the end.