Your 401(k) is Falling Short? Here's How to Make it Retirement-Ready
If you're looking at your 401(k) statement, and are concerned your balance won't be enough to retire on, join the club. A Gallup poll found that only half of non-retired adults with retirement plans feel they'll have enough to live comfortably during retirement.
A common rule of thumb for a financially comfortable retirement is that you should be able to generate 80% of your pre-retirement income. The median annual income for full-time and salary workers 65 and older is $62,296, according to July 2025 data from the Bureau of Labor Statistics. That means the median worker would need to generate just under $50,000 annually.
Yet the median 401(k) account for someone 65 and older has a balance of just $95,425, according to 2025 Vanguard data. That's far too little to go the distance in creating income for a retirement. Even after Social Security checks, which averaged about $2,000 a month in August 2025, the median worker will be able to generate the income needed to retire for only a few years. That's far short of the multiple decades most seniors live after they stop working.
The actual dollar amount you should have in your 401(k) in order to retire comfortably will vary from person to person. The variables include your desired standard of living, when you retire, your pre-retirement income and supplementary income sources and savings.
If, after you analyze your needs, your 401(k) balance looks like it'll fall short of what you need to retire, here's what you can do to catch up.
Beef up your 401(k) balance
The best starting point to a healthier 401(k) is to take steps to increase what's going into the account. And, then, consider what those contributions are earning and at what cost.
Try to increase your contributions
The most straightforward way to bolster your 401(k) balance is by contributing more of your income to your retirement account.
The limit for 401(k) contributions in 2025 is $23,500 for employee salary deferrals, and up to $70,000 total with employer contributions factored in. Workers who are 50 to 59 and 64 and older are eligible for an additional $7,500 in contributions. Workers who are 60 to 63 years old are eligible for $11,250 in catch-up contributions.
While you may not be able to completely max out what you put into your 401(k), you should at least aim to take full advantage of the partial match of 401(k) contributions that many employers offer.
Dollar-for-dollar, these employer matches go a long way toward saving for retirement, generating tax-advantaged — and essentially "free" — money. If you're actively saving money elsewhere and you're not currently maxing out your employer match, consider moving some of those funds to your 401(k).
Review your portfolio's risk level
As you put money into your 401(k), you can allocate your money into various investments. As a general rule, earning the highest returns requires a willingness to take on the highest risk. This rule is especially true, and safest to follow, if you're younger, and so have more time to recover from any risks that didn't pan out.
On the other hand, as you get closer to retirement age, you're less able to recover from losses from more volatile or higher-risk investments, because you have less time to recover from them. Consequently, it's generally wise to reduce your portfolio's risk level.
One option for managing that transition is to choose an age-adjusting mutual fund, which is also known as a target-date fund. These investments automatically adjust the risk level in your portfolio to your age, and shift to more conservative investments as you approach your target date, which in this case is the estimated time of your retirement.
Cut costs by consolidating accounts
If you've worked for multiple employers over your career, you may have a trail of 401(k)s behind you, one for each job in which you opened a retirement account. Provided those investments were fully vested — as in, they came entirely to you when you left the job, including the employer contributions — you still have access to the money in those accounts.
But having a collection of 401(k)s with various former employers can have several drawbacks. For one, it makes balancing and managing your nest egg more difficult — or more time-consuming, at least. Additionally, each 401(k) can be subject to separate overhead costs, like administrative fees and investment fees, that can collectively add up to more than if the investments were unified.
Consolidating your 401(k)s into a single plan can simplify your retirement savings and reduce costs. That said, you'll have to make sure the accounts you hope to combine all allow for a rollover. If some or all of your 401(k)s cannot be rolled over, you can still opt to place the ones that don't roll into an IRA.
Avoid dipping into your 401(k)
In desperate situations, you can dip into your 401(k) before you retire. But you'll have to pay taxes on them at your current rate. Those may be higher than after you stop working. In addition, if you're younger than 59-½ you'll also pay penalty fees on the early withdrawal. (In extenuating circumstances, you can take out a hardship withdrawal or qualified withdrawal and avoid those penalties.)
Taxes and fees aside, raiding your accounts early means you'll miss out on the potential gains that the money you removed might have earned if you hadn't withdrawn it. Since earnings compound over the years, you could easily forego several times the value of your withdrawal before you retire.
Before you make an early withdrawal, then, consider the alternatives. For one, you could consider a form of loan. While you may immediately think of a personal loan, if you have a whole life insurance policy that has accumulated a cash value, you can consider taking out a loan against that balance.
Additionally, you may be able to borrow against what's in your 401(k), usually up to $50,000 or 50% of your vested balance, whichever amount is lower. You're still charged interest, but you'll generally pay less of it than with a traditional personal loan. While a 401(k) loan isn't without risk, it's a solid alternative to simply removing funds from your 401(k).
Consider other savings options
If you've optimized your 401(k) contributions and costs, and you're still not contributing enough to your retirement, it's time to also consider solutions that lie beyond your company plan. Those steps should begin with examining tax-advantaged plans that you may not be utilizing fully, or at all.
Health savings accounts (HSAs)
An HSA is a savings account used to pay medical expenses. These often increase as you grow older, and so become more susceptible to illness. Deposits in an HSA aren't taxed, even when they accrue interest. In 2025, people under 55 can contribute up to $4,300 to their HSA and $8,550 for family coverage. People 55 and older can contribute an additional $1,000.
IRAs
Individual retirement accounts, or IRAs, are a type of retirement savings account that individuals can set up for themselves without an employer. They work similarly to 401(k)s, offering tax advantages and growth over your working years.
Contributions to an IRA can be made on top of the maximum contributions allowed for your 401(k). In 2025, people under the age of 70 can contribute $6,000 annually into their IRA, and you can contribute up to $7,000 a year if you're above the age of 70.
There are two main types of IRAs: traditional IRAs and Roth IRAs.
Traditional IRA: You contribute to a traditional IRA with pre-tax income. The income you contribute to your traditional IRA can be deducted from your income tax for the year in which you contribute, so the tax benefit is immediate. However, you'll have to pay taxes on withdrawals when you retire. This option is best for those who expect to be in a lower tax bracket when they withdraw funds from their IRA.
Roth IRA: You contribute to a Roth IRA with post-tax income, so you won't experience immediate tax benefits. However, you don't have to pay taxes on withdrawals when you retire. This option is best for those expecting to be in a higher tax bracket when they take withdrawals.
Non-retirement investment accounts
You can bolster your retirement savings with traditional investments and mutual funds. These investments give you greater freedom and more options compared to a 401(k). Plus, there's no limit to how much you can invest or when you're allowed (or required) to withdraw your funds.
That said, investments made through a brokerage won't carry the same tax benefits that come with your retirement account. In short, any dividends and gains you earn are likely to be subject to taxes.
Consider hiring a professional
If you're worried you won't be able to retire, or your various retirement savings accounts are a little too complicated for you to handle alone, consider hiring professional help.
A financial planner can help you optimize how much you save for retirement and where that money should go. Additionally, if you need deeper tax advice than a planner can provide, a tax advisor can walk you through the various tax considerations of your various accounts, ensuring you're making moves that will minimize your taxes.
Even if you choose not to consult a pro, it's generally recommended that you review your retirement plan at least annually, so your plan reflects any shifts in your goals and priorities.