While there may still be a long way to go in ensuring a secure retirement for the majority of Americans, we’re at least headed in the right direction with a 401(k) record high.
Boston-based mutual fund behemoth Fidelity Investments reported in late April that the average 401(k) balance at the end of the first quarter 2015 was $91,800, a new record. The average balance was up 0.5 percent from last quarter and up 3.6 percent from one year ago.
Because of its size and the number of plans it administers, Fidelity is seen as a bellwether of the overall 401(k) industry. The company oversees a corporate defined contribution plan base of 21,100 plans that include 13.5 million participants.
“How much an individual contributes to their retirement savings is one of the most critical factors in retirement readiness,” Jim MacDonald, president of workplace investing for Fidelity, said in a statement. “Contributions to retirement savings accounts have increased across the board, including IRAs, small business plans and traditional 401(k) accounts. We’re very encouraged by this trend and hope to see it continue, considering that any increase in savings – even by one percent a year – can have a positive impact on long-term retirement success.”
More than a million workers increased their contribution rate in Q1 2015, and a record 23 percent of employees have increased their contribution rates since Q1 2014. The average overall savings rate, which includes both employee and employer contributions, increased to 12.5 percent. The employee contribution rate remained constant at 8.1 percent while the employer contribution rate climbed to 4.4 percent.
Additionally, Fidelity found that:
- Almost a third (27.9 percent) of all 401(k) plans automatically enroll new workers as of Q1 2015, up 2 percent points from one year ago, while 13 percent of employers will automatically increase employees’ contribution rate each year.
- For employees in a 401(k) plan for 10 years or more, the average balance was $251,600, up 12 percent year-over-year.
- The percentage of employees with an outstanding 401(k) loan dropped to 21.8 percent, the lowest level in five years.
Specific to individual retirement accounts (IRA) the company reported that the average IRA balance was slightly higher than 401(k)s at the end of Q1, $94,100, a record high and up 5 percent over last quarter.
While the average IRA contribution in Q1 was $3,150, a slight drop from the Q1 2014 average contribution of $3,270, the overall percentage of investors making a contribution to their IRA in Q1 2015 was 7% higher than in Q1 2014, and among investors under age 35 the increase was 26% year-over-year.
For investors that contribute to both an IRA and a 401(k) at Fidelity, the average combined IRA and 401(k) balance through the end of 2014 increased 2.2 percent year-over-year from $261,400 to $267,200. The average combined contribution increased 1 percent from $11,200 to $11,300.
Finally, the company reported on trends among the country’s small business retirement plans, which it defines as those businesses with less than 100 employees. Specifically self-employed 401(k) accounts, self-employed (SEP) IRAs, and Savings Incentive Match Plan for Employees (SIMPLE) IRAs from 2007 through the end of 2014 were analyzed.
- For self-employed 401(k) accounts, the average balance at the end of 2014 was $144,100, a 39 percent increase since 2007. The average contribution was $22,400 at the end of 2014, a 29 percent increase since 2007.
- For SEP IRAs, the average balance at the end of 2014 was $89,800, a 48 percent increase since 2007. The average contribution for 2014 was $14,000, a 20 percent increase since 2007.
- For SIMPLE IRAs, the average balance at the end of 2014 was $37,700, a 54 percent increase since 2007. The average contribution for 2014 was $6,260, an 8 percent increase since 2007.
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With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
