Retirement Blog

Finance Blogs » Retirement » 401(k) balances set record

401(k) balances set record

By Jennie L. Phipps · Bankrate.com
Thursday, November 8, 2012
Posted: 3 pm ET

Fidelity Investments, the largest provider of 401(k) plans in the country, said Thursday that 401(k) average balances are at an all-time high, rising 18 percent from a year ago to $75,900 at end of the third quarter -- the highest since the company started keeping track 12 years ago.

The average annual employee contribution to a 401(k) rose 7.3 percent over the last five years to $5,900 in the year that ended Sept. 30, according to Jeanne Thompson, vice president of market insights at Fidelity. Over the same time period, employer contributions rose 19 percent to an average of $3,420.

In the last year, improved investment returns accounted for 74 percent of the growth, while increases in employer and employee contributions accounted for 26 percent. Thompson says that employers do their employees a big favor when they automatically enroll them in 401(k) plans because more than 90 percent of automatically enrolled employees stay in the plan and keep saving.

The average employee, according to Fidelity, saves 8 percent of his salary, although Fidelity recommends saving 10 percent. Nevertheless, today's news represents an encouraging trend. "We see that for many people, the 401(k) is the primary retirement savings vehicle, and they are increasingly committed to saving in them," Thompson says.

Let's do a little retirement planning arithmetic, using the Bankrate.com 401(k) savings calculator. Let's say you make $30,000 at age 25 and you work steadily, getting a 3 percent annual raise until you retire at 67. You save 8 percent a year, getting a 50 percent employer match on 6 percent of your salary. By the time you retire, you'll have more than $1.1 million, assuming a 7 percent annual rate of return. If you up your contribution rate to 10 percent, you'll have almost $1.4 million. Using the rule that says that you can safely withdrawal 4 percent a year from your retirement accounts, that gives you about $55,000 a year in spending money. Add that to Social Security, and life in retirement could be comfortable.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
10 Comments
bjMiller
November 09, 2012 at 6:10 pm

Well let's hope the goverment don't find away to rob them like they have SS.

Joan Savoie
November 09, 2012 at 2:42 pm

Just think how much we would all have if WE would have been allowed to invest the money we paid out in Social Security all these years.

Pegs
November 09, 2012 at 12:23 pm

Get taxed at today's rates instead of tax rates when you retire. If you qualify, start a Roth.

Pegs
November 09, 2012 at 12:22 pm

Start a Roth

Pete
November 09, 2012 at 12:14 pm

I believe 401k distributions are taxable so in theory the government could receive more of your 401k in the form of taxes.

Elaine
November 09, 2012 at 11:25 am

Response to Rosemary: No, the federal government has no right to withdraw from a person's 401(k) account any more than they have the right to withdraw from a person's savings or checking account. A 401(k) account is the private property of the individual who contributes the money to it, it is not the property of the U.S. Government in any way, shape or form.

Katie
November 09, 2012 at 11:25 am

@Rosemary:

That's exactly what they'll do, they'll just to it through taxes and inflation instead of directly raiding your 401(k).

Basic math says that the money to pay for X (where X = retirement, health care, wars, or whatever) must always come from those who have it. You can't get blood from a stone, right? The only options a broke government has when paying for ANYTHING are (a) take money from savers, or (b) print more money.

Some countries like Argentina have directly seized people's retirement funds, but the US constitution would make that impossible here. What they might do that would have the same basic effect as a seizure, however, is declare that all retirement accounts must henceforth invest a certain percentage of their assets (25%, say) in US bonds. That would be forcing us to lend 25% of our retirement assets to them. Which they would then turn around and spend...

Rosemary
November 09, 2012 at 10:53 am

Is it possible for the u.s. government to take or borrow from the 401 k's to help the people who didnt save for retierment?

Tim Godsey
November 09, 2012 at 10:18 am

is it ok to pay off your at retirement from your 401k