There is no single “401(k) return.”
A 401(k) is an account. Your return depends on what you invest in inside that account.
Someone with 90% in stock funds should not expect the same year-to-year result as someone with 40% in stocks and the rest in bonds and stable-value investments. Two coworkers in the same company plan can have completely different returns.
That is why a headline such as “the average 401(k) earns 8%” is not very useful by itself.
There are useful benchmarks, though.
Vanguard’s *How America Saves 2026* ↗ report looked at millions of participants in Vanguard-administered defined-contribution plans. For the five years ending December 31, 2025, Vanguard reported an average five-year annualized total return of 9.0% across the participant observations in its return analysis, with a median around 9.4%. The range was wide.
That is valuable context. It is not a promise that 9% is the “correct” return for your 401(k), and it is not a guaranteed future return.
The better question is:
Did my portfolio perform reasonably for the amount of stock, bonds and other investments I chose, after fees, over a meaningful period?
Quick answer:** Judge your 401(k) against a benchmark that resembles your actual investment mix. A 60% stock / 40% bond portfolio should not be judged against the S&P 500 alone. Look at three-, five- and ten-year results, use the plan’s stated benchmarks, and pay attention to fees.
Why two 401(k)s can have completely different returns
Imagine two employees, both age 45, working at the same company.
Employee A
- 90% U.S. and international stock funds
- 10% bond fund
Employee B
- 40% stock funds
- 50% bond funds
- 10% stable-value fund
In a strong stock-market year, Employee A may earn much more.
In a sharp stock-market decline, Employee A may lose much more.
Neither result proves that one employee is “better at 401(k)s.” They chose different levels of risk.
A return number only makes sense when you know the portfolio behind it.
What Vanguard’s current participant data tells us
Vanguard’s 2026 report provides a useful real-world snapshot because it analyzes actual participants rather than a hypothetical portfolio.
For the five-year period through December 31, 2025, the report showed a wide spread in annualized participant returns. In the overall return analysis, the average five-year total return was about 9.0%, while the median was about 9.4%.
The report also showed wide variation depending on how accounts were managed. People using a single target-date fund, balanced fund or managed account tended to have a narrower range of outcomes than participants making their own investment choices.
That makes intuitive sense. A diversified all-in-one portfolio keeps people closer to a consistent asset allocation. Self-directed investors can end up anywhere from very conservative to extremely aggressive—or make market-timing decisions that change results.
Two cautions are essential:
- Vanguard’s participants are not every 401(k) participant in America.
- The five years ending in 2025 are a specific historical period. They do not tell you what the next five years will return.
Past performance is not a forecast.
What is a “good” 401(k) return?
A good return is a return that is reasonable for your chosen risk level, costs and time horizon.
That is less satisfying than a single percentage, but it is more accurate.
Use this process.
Step 1: Find your asset mix
Look at your current 401(k) investments and estimate the percentage in:
- U.S. stocks
- International stocks
- Bonds
- Stable value or cash-like investments
- Company stock
- Other assets
If you own one target-date fund, the fund’s fact sheet should show its underlying allocation.
Step 2: Find the right benchmark
Your plan is required to provide investment information, and participant disclosures commonly include performance over multiple periods along with an appropriate broad market benchmark.
The Department of Labor notes that plan investment information can include one-, five- and ten-year performance, a broad-based securities-market index for comparison and the expense ratio for each option.
Use those benchmarks.
A U.S. large-cap stock fund can reasonably be compared with a broad U.S. large-cap stock index.
A bond fund should be compared with a bond benchmark.
A target-date fund should be compared with a benchmark or peer approach that reflects its mixed allocation and glide path.
Step 3: Use more than one year
One-year returns are noisy.
A fund can have a fantastic year because the part of the market it owns happened to surge. That does not prove the fund is well designed.
Likewise, a diversified portfolio can lag the S&P 500 during a U.S. mega-cap stock rally and still be doing exactly what it was built to do.
Look at:
- 1 year for recent context
- 3 years for a first medium-term view
- 5 years for a more useful comparison
- 10 years when available for a full-cycle perspective
Then compare those periods with the fund’s benchmark, not a random headline index.
Do not confuse account growth with investment return
Suppose your 401(k) was worth $100,000 on January 1 and $122,000 on December 31.
Did you earn 22%?
Not necessarily.
If you contributed $18,000 during the year and your employer added $6,000, your balance could rise even if investment performance was flat or negative.
The opposite can happen too. You can have positive investment returns but see a smaller-than-expected account increase because you took a loan, withdrawal or distribution.
Your recordkeeper may show a personal rate of return that accounts for the timing of your deposits and withdrawals. That is more useful than simply comparing January and December balances.
Personal return and fund return are not the same thing
A fund can report a 10% return for the year while your personal return is different.
Why?
Because you did not invest your entire year’s contributions on January 1.
You added money paycheck by paycheck.
If the market rose sharply early in the year, later contributions missed part of that gain. If the market fell early and recovered later, your ongoing contributions may have bought shares at lower prices.
Transfers between funds also change your personal experience.
So when your fund page says “10.4%” but your account page says “8.9%,” it does not automatically mean someone made a mistake.
Check what each number measures.
Your stock/bond mix is the biggest driver
Over long periods, stocks have generally offered higher expected return and higher volatility than high-quality bonds. That does not mean stocks outperform every year.
Asset allocation is the decision about how much of your portfolio goes into different categories.
The SEC’s Investor.gov explains asset allocation and diversification ↗ as ways to balance risk and spread money among investments rather than concentrating everything in one place.
Your allocation should make sense for your time horizon and willingness to live through losses.
A 30-year-old with decades until retirement may choose a very different stock exposure from a 67-year-old who expects to begin withdrawals soon.
That means they should not expect the same return.
Target-date funds give you a cleaner benchmark
If your entire 401(k) is invested in a target-date fund, performance evaluation is easier.
A target-date fund holds a mix of investments and gradually becomes more conservative as the target retirement year approaches.
Instead of trying to compare ten separate funds, you can ask:
- How did the target-date fund perform versus its stated benchmark?
- How does its stock/bond mix compare with similar target-date funds?
- What does it cost?
- Does its risk level fit me?
Target-date funds are not guaranteed and funds with the same target year can use different allocations. But they make it harder to accidentally build a portfolio with five overlapping U.S. stock funds and no meaningful diversification.
Fees quietly reduce your return
If two investments earn the same return before costs, the lower-cost investment leaves more money for you.
A one-percentage-point annual difference sounds small. Over decades, it is not.
Imagine $100,000 growing for 30 years with no additional contributions:
- At 7%: roughly $761,000
- At 6%: roughly $574,000
The difference is about $187,000.
That is not a prediction of either return. It simply shows how a persistent 1% annual drag compounds.
This is why performance and fees should be reviewed together.
Read our guide to 401(k) fees and what is normal.
Use the right data for the right question:** compare employer plans for filing-level costs and plan context. Use your account provider—not Form 5500—to measure your personal return.
Company stock can make the number misleading
Some workers have a large portion of their 401(k) invested in employer stock.
That can create spectacular results when the company is doing well—and a painful double hit when the company struggles.
Your job and your retirement savings can become tied to the same business.
If your company stock has driven unusually high or low returns, compare the rest of your portfolio separately. A concentrated company-stock position is not a normal benchmark for a diversified retirement portfolio.
A bad return may actually be a bad allocation
If your 401(k) return disappoints you, do not immediately swap into whichever fund performed best last year.
First diagnose the issue.
Question 1: Is the portfolio too conservative for what you expected?
If most of your account is in bonds, stable value or cash, lower long-term expected growth should not be surprising.
Question 2: Is it too aggressive for your comfort?
A portfolio that is almost entirely stocks can fall sharply. If you panic and sell during declines, the problem may be a mismatch between the allocation and your actual risk tolerance.
Question 3: Are the funds lagging their benchmarks?
If a fund persistently trails an appropriate benchmark by more than its cost would explain, investigate why.
Question 4: Are fees high?
Look at expense ratios and plan-level costs.
Question 5: Did you make large moves during market swings?
Selling after a decline and buying back after a recovery can make a reasonable portfolio produce a poor personal return.
What return should you assume for retirement planning?
Do not build a retirement plan around the best five-year return you can find.
Planning assumptions should be conservative enough to survive disappointing markets.
A reasonable planning process uses multiple scenarios rather than one magical number:
- Lower-return case
- Middle case
- Higher-return case
Then ask whether your savings plan still works if returns are weaker than expected.
Your contribution rate is one of the few variables you can directly control. Market returns are not.
That is why increasing a savings rate can be more useful than spending hours trying to pick the “best” fund for next year.
See how much to contribute to a 401(k) for a practical savings framework.
A five-minute 401(k) performance review
Open your account and write down:
- Your personal 1-, 3- and 5-year return, if shown
- Your current stock/bond/cash allocation
- The largest five investments
- Each fund’s expense ratio
- Each fund’s appropriate benchmark
- Whether you hold company stock
- Whether your allocation changed materially during the period
Then ask:
Is my return broadly consistent with the risk I chose, after reasonable costs?
That question is far more useful than “Did I beat the S&P 500?”
Frequently asked questions
What is the average 401(k) return?
There is no universal return because participants hold different investments. In Vanguard’s *How America Saves 2026* analysis, the average five-year annualized total return for the participant observations shown was about 9.0% through the end of 2025, with a median around 9.4%. That is historical context, not a guaranteed or universal expected return.
Is 10% a good 401(k) return?
It can be, depending on the period and the amount of investment risk. A 10% return in a conservative portfolio means something different from a 10% return in an aggressive stock-heavy portfolio. Compare it with an appropriate benchmark over several years.
Why is my 401(k) return lower than the S&P 500?
Your 401(k) may include bonds, international stocks, small-company stocks or other investments. A diversified portfolio is not supposed to match the S&P 500 exactly.
How do I find my actual 401(k) return?
Look in your recordkeeper’s performance section for a personal rate of return. Do not calculate return simply by comparing your beginning and ending balance because contributions and withdrawals affect the balance.
Do 401(k) fees reduce investment returns?
Yes. Fund expense ratios and other investment-related costs reduce the amount left for investors. Plan administrative costs can also affect participant accounts depending on how the plan pays them.
Should I change investments because my return was bad last year?
A weak single year alone is not a good reason. Compare the investment with an appropriate benchmark over longer periods, review fees and decide whether the underlying allocation still fits your goals and risk tolerance.
Bottom line
There is no one return your 401(k) is “supposed” to earn.
Your return is the result of your investments, risk level, fees, contribution timing and decisions along the way.
Use broad participant data as context, not as a grade. Then judge your own account against the benchmark that actually matches what you own.
A diversified 401(k) doing its job can underperform the hottest stock index and still be a perfectly reasonable retirement portfolio.