Consistent 401k Employee Contributions are Critical to Retirement Savings

It seems like reports about Americans’ retirement savings have been nothing but bleak since the onset of the Great Recession in 2008. But a new report from Fidelity Investments show that workers who made consistent 401k employee contributions over the past ten years have seen their 401k balances more than triple – despite the devastating investment losses of 2008-09.

Fidelity is the nation’s largest provider of “workplace retirement savings plans”, managing 11 million 401k accounts for nearly 17,000 corporate employers. Fidelity issues an annual 401k report card showing the changes in the average 401k account balances of its clients. for 2010, the news was surprisingly upbeat:

The average 401k account balance rose to $71,500 at the end of 2010, reaching a 10-year high since Fidelity began tracking the data based on the industry’s largest participant base of 11 million 401k accounts. For participants who were continuously active for the past 10 years 1 , their average balance increased to $183,100 at the end of last year from $59,100 at the end of the fourth quarter 2000. Average participant deferrals remained at 8.2 percent for an eighth straight quarter 2

Bear in mind that just two years ago, Fidelity’s 401k report found the average 401k account balance had fallen 27% in 2008 from $69,200 to $50,200. Here are the average 401k account balances reported by Fidelity as of the end of 2010:

20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
Over 70
$3,500
$11,700
$25,300
$42,500
$59,900
$81,100
$105,400
$122,400
$120,600
$122,900
$96,700
401k Employee Contributions

Consistent 401k employee contributions are key to successful 401k planning.

401kPlanning offers a free 401k calculator that can clearly illustrate the importance of making regular 401k employee contributions. For example, a 30 year-old making $40,000, who is just starting to save for retirement by setting aside 5% of his pay can expect to accumulate a half-million dollars at age 65 ((Assumes 3% annual salary increase and 8% return on investments) – with no matching employer contribution! If the same worker is lucky enough to be with an employer that matches 50% of his contributions, he can expect to amass $750,000 at retirement age.

Bottomline:It is proven fact that needs to be clearly understood by 401k planners that starting to save early and consistently for retirement by making reasonable 401k employee contributions provides the best chance to meet retirement expenditure goals.


Notes:
  1. “Continuously active” means10-year continuous participants were both actively employed by a plan sponsor and had a balance for the full 10 years. Account balance growth is attributed to both contributions and market activity. []
  2. This includes both employee pre- and post-tax contributions, but excludes employer contributions. []

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