How Do I Compare to Other 401k Owners?

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Employees belonging to 401k retirement plans often want to know how they compare with “typical” 401k participants. Are they far behind the pack in saving for retirement? Do they contribute as much as others? How does their employer contribution (or match) compare?

The Congressional Research Service recently published a report (Retirement Savings and Household Wealth in 2007) that provides a good sanpshot of American household retirement assets based on the most comprehensive and current data available.

Below are some key metrics take from the CRS report that help define characteristics of “typical” 401k account owners in 2007. While this information provides interesting comparisons, do not assume that because your 401k compares favorably with the benchmarks, all is well with your retirement plans. As the report points out, median retirement account balances (before the market collapse) were too low to provide for an adequate and stable income in retirement:

…the balances in these accounts—even among those who are near retirement—are generally low. For example, if the median retirement account balance of $100,000 among households headed by persons 55 to 64 years old in 2007 were converted to an annuity, it would provide a monthly income of $700 per month ($8,400 annually) to a man retiring at age 65 in 2009. This amount would replace just 15% of the median income of households headed by individuals who were 55 to 64 years old in 2007.

 

401k Participation Benchmarks

  1. 49.4% of workers under age 65 were employed in jobs that offered employer-sponsored defined contribution (401k, 457, 403b) retirement plan.
  2. 39.2% of workers under age 65 actually participated in employer-sponsored defined contribution (401k, 457, 403b) retirement plan.
  3. 79.3 of employees offered an employer-sponsored defined contribution retirement plan elect to partipate in the plan (i.e. the take-up rate).1
  4. Age is a key determinant of 401k plan participation: only 70% of workers under age 35 whose employers sponsored DC plans participated in those plans in 2007. In contrast, the take-up rate among workers aged 35 to 44 was 82%, and the take-up rate among workers aged 45 to 54 was 83%.
  5. Another key factor is size of employer: only 9% of workers employed at firms with fewer than 20 employees participated in a defined contribution plan, compared to 35% of workers at firms with 20 to 99 employees, 46% of employees at firms with 100 to 499 employees, and 57% of employees at firms with 500 or more employees.
  6. Other notes on 2007 401k participation:
      41% of married households participate in DC plans versus 35% for non-married
      41% of male workers participate in DC plans versus 37% for females
      43% of full-time workers participate in DC plans versus just 14% for part-time

401k Contribution Benchmarks

  1. The median monthly household contribution in 2007 among households in which either the householder, the householder’s spouse or both contributed to a DC plan was $290 (5.1% of earnings). Twenty-five percent of households contributed $656 per month (8.3% of earnings) or more, and 25% of households contributed $130 per month (2.9% of earnings) or less.
  2. The median monthly employer contribution in 2007 among households in which employers made contributions on behalf of either the householder, the householder’s spouse, or both was $190 (3.1% of earnings). Twenty-five percent of households received monthly employer contributions of $360 or more (5.0% of earnings), and 25% of households received employer contributions of $92 per month (1.8% of earnings) or less.
  3. The median monthly total contribution to DC plans in 2007 from all sources—the householder, the householder’s spouse, and/or an employer—was $440 (8.0% of earnings). In 25% of households, monthly contributions from all sources were $920 (11.9% of earnings) or more, and in 25% of households total monthly contributions were $208 (4.5% of earnings) or less.

401k Loan Benchmarks

  1. 10% of households in which either the householder, the householder’s spouse, or both
    participated in a defined contribution plan in 2007 reported that they had a loan currently outstanding against at least one plan.
  2. The mean outstanding balance of all household loans against retirement plans was $6,672 and the median household loan balance was $5,000.
  3. 25% of all households with loans against retirement plans had outstanding balances of less than $1,800, and 25% of households outstanding loan balances of more than $9,000. Just 5% of households with loans against retirement plans had outstanding loan balances of more than $20,000.

401k Account Balance Benchmarks

Bear in mind that the defined contribution account balance information shown here is from 2007 – prior to the broad market delines of 2008-09. Still, the information in the CRS report “provides the most comprehensive and current data available on the amount and type of retirement assets owned by American households.”

  1. Among households with one or more workers under age 65 that owned one or more defined contribution accounts from current or past employment of the householder or the householder’s spouse, the median combined balance of all defined contribution accounts owned by the household in 2007 was $32,500. Twenty-five percent of all worker households with at least one defined contribution account in 2007 had DC plan balances of $106,000 or more and 25% of
    households with one or more DC accounts had combined DC account balances of $8,700 or less.
  2. The median balance of household retirement accounts was just $9,600 among households headed by persons under age 35.
  3. Households headed by persons aged 35 to 44 had median retirement savings of $37,000 in 2007.
  4. Households headed by persons aged 45 to 54 had median retirement savings of $63,000.
  5. households headed by persons aged 55 to 64 had median retirement savings of $100,000 in 2007.
  6. households headed by persons aged 65 and older had median retirement savings of $68,800 in 2007.

Notes:
  1. The percentage of employees offered a plan who elect to participate is called the take-up rate. The participation rate in DC plans depends on both the percentage of workers offered a plan and the take-up rate among those workers whose employers sponsor a plan. []