Fidelity reports new highs in the 401(k) balances it manages, but warning lights are flashing. The Boston-based fund behemoth finds many workers are failing to “get while the getting’s good” by not taking full advantage of company matches.
It also notes the potential for overexposure to equities, a recurring behavioral finance frustration that occurs in periods of rising markets.
The average 401(k) and IRA balances hit $97,700 and $100,200, respectively, setting new high-water marks for each.
People in their 401(k) for 10 years straight saw their balance increase to a record average of $266,100, up from $78,800 the second quarter of 2007. The 10-year growth is attributed to 53 percent market action and 47 percent employee contributions, which shows the benefit of saving and investing with a long-term view.
Additionally, Fidelity’s yearly analysis of small business retirement plans, which includes self-employed 401k accounts, self-employed (SEP) IRAs and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, indicated average balances have increased by double digits since the second quarter of 2106.
The average balance for self-employed 401(k)s increased 10 percent to $162,700, while the average balance for SEP IRAs increased 14 percent to $100,400. The average balance for SIMPLE IRAs grew to $39,000, an increase of 10 percent from the same period last year.
However, one in five workers still isn’t taking full advantage of their 401(k) company match. Over the last 12 months, employees contributed a record average of $5,850 to their 401(k), up 4 percent from one year prior. Fidelity research shows more than one in five employees (21 percent) did not contribute enough to their 401k to take full advantage of their company’s matching contributions, potentially missing out on thousands of dollars in matching contributions over the course of a year.
“While many employers have made it easier to enroll and get started in their 401(k) plans, employees need to verify they are they are taking full advantage of their company’s matching contributions,” Kevin Barry, president of Workplace Investing with Fidelity, said in a statement. “Nearly 90 percent of employees are eligible for some sort of company match, so it’s important to know what your company offers and make every effort to save enough to get the full match. If not, you’re essentially leaving free money on the table.”
Lastly, Fidelity found that 40 percent of those who managed their own 401(k) asset allocation–as opposed to having their savings in a target date fund or managed account–had a stock allocation in their 401k that was higher than recommended, up from 38 percent from the second quarter of 2016.
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.
