401K Savings Are on the Rise
In this past week amid a slew of earnings reports, an FOMC meeting and lots of economic numbers, Fidelity Investments released a new report on retirement savings. Compiled from the data of 13 million active and retired employees over 21,000 retirement plans, it included good news and provided a snapshot that America’s workers are again saving.
We hope you’re included in these positive numbers.
401(k) Balances Are Rising
According to Fidelity’s quarterly data, the average 401(k) balance at the end of March (first quarter 2014) was $88,600, up more than 9 percent from the previous year’s $80,900. Furthermore, values have jumped 92 percent in the last five years since 2009’s first quarter of $46,200–the market low for the economic downturn.
Being older appears to be a good thing for saving. When breaking numbers down by age, pre-retirees age 55 and older have a $165,000 average balance, up 9.6 percent from the previous year’s $150,500 average figure–about double from March 2009’s $88,700 average balance.
Furthermore, being experienced is even better as the 55 and older group with at least 10 years’ service from their current job reported an 11.7 percent rise in account balances to $284,800, up from the previous year’s $255,000 and up more than double from March 2009’s $130,700 figure.
Fidelity Individual Retirement Account (IRA) average balances increased 11 percent to $89,500, up from 2013’s $80,500.
So where do all of these favorable numbers come from? There are two dominant factors.
Improving Markets, Saving Efforts
Jeanne Thompson, a vice president at Fidelity, said via CNBC, “About three-quarters of the account balance growth has been due to the market and about 25 percent or a quarter has been due to employees putting more money into their 401(k) plans.”
She added, “When we look over a 10-year period, what we find is that 50 percent is due to the account balance growth, to the market growth, and 50 percent is due to employee and employer contributions. What that drives home is that it’s imperative over the long term not only to put money into your 401(k) but also to make sure you’ve invested appropriately for your age.”
Additional survey highlights included the statistic that the average employer match of 4.4 percent–a record high—is up from March 2007’s 4 percent and March 2009’s 3.8 percent. Thompson added that companies need to do more to “help prepare their employees for retirement.”
One way to do this is by getting them to save more (and for some, even just begin saving).
More would be better
The survey also disclosed that many employees are not adding to their company’s retirement plans: about one-third of them with access to a 401(k) plan did not add to them. And for those who do have the opportunity to receive matched contributions by the employer, they may not be utilizing this.
Fidelity’s data showed that on average, about 8 percent of a worker’s pay will be saved into a 401(k); however, another company’s recommendation is 10 to 15 percent. One way to move toward this number is through automatic enrollment, which currently sits at 26 percent by company’s employees.
As they say, it takes two to tango for saving.
No Magic Number
As Fidelity’s data paints a promising picture, it’s hard not to ask if there is a magic number to keep in mind for your retirement savings. Many once believed (and sure, some still do) it was $1 million but now $2 or $3 million could be the new million dollar figure.
A 401(k) is just one tool to get you there but there’s an array of factors that can affect your “magic number” such as retirement age, expenses, activities, where you live, you name it! But regardless, an assessment of your current financial health and sound financial planning are keys to getting on this successful savings road.
If you haven’t already started, do so through your employer, begin today. By putting this important life chapter on the back burner, it will come back and scorch you if you don’t give it the right attention.