Little surprise; 401(k) balances recovered in the fourth quarter of 2015 after a tumultuous third quarter, but it wasn’t enough to pull them from negative territory for the year.
Investment behemoth Fidelity Investments released its 401(k) and Individual Retirement Account (IRA) savings analysis, which found:
- 401(k) and IRA account balances increased in Q4 2015, but are down year over year. After decreasing in Q3 2015 due to market volatility, average retirement account balances recovered in Q4 2015, but are still below the averages from Q4 2014.
- Both 401(k) and IRA account holders continued to contribute to their retirement savings accounts. The average IRA contribution was $1,500 in Q4 2015, up from $1,260 in Q3 but down from $1,660 in Q4 2014. The average total 401(k) contribution, which includes both employee and employer contributions, was $2,540 in Q4 2015, down slightly from $2,610 in Q3 but up from $2,440 in Q4 2014. During 2015, employers contributed an average of $3,610 to 401(k) accounts through profit sharing or company match.
- An increasing percentage of retirement assets are in target date funds or managed accounts. As of the end of Q4 2015, 25 percent of total 401(k) assets on Fidelity’s platform were held in target date funds, and two-thirds (67 percent) of Fidelity 401(k) account holders had at least some of their savings in a target date fund. Among Millennials, 63 percent had all of their retirement assets in a target date fund at the end of Q4. The use of Fidelity’s professionally-managed account portfolios continued to increase in 2015, growing by 19 percent since 2014.
As always, Fidelity reiterated the dangers of trying to time the market in response to recent volatility. The company examined 401(k) investor behavior between 2008 and 2015, and compared people who continued to invest in equities during this period with those who dropped to zero percent equity in their 401(k).
Assuming the investors started with a balance of $10,000, the analysis showed that investors who went to zero equities saw their 401(k) balances grow by 74 percent to $17,360, while those who kept a portion of stocks in their 401(k) saw their balance grow almost 150 percent to $24,800.
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.
