Bad News for 401(k) Savers?
Distressing news from Alicia Munnell and crew at the Center for Retirement Research at Boston College.
Citing the Federal Reserve’s 2016 Survey of Consumer Finances as “an opportunity to examine households’ holdings in 401(k)s and IRAs,” CRR notes that, “for working households nearing retirement with a 401(k), median combined 401(k)/IRA balances rose from $111,000 in 2013 to $135,000 in 2016.”
It might seem like a positive but no.
“While growing balances are encouraging, $135,000 provides only $600 per month in retirement, so current saving levels are still falling short,” the academics calculate. “Moreover, about half of households nearing retirement have no 401(k) assets at all, so lack of access to a plan remains an enormous problem.”
The 401(k) system, they conclude, has evolved over time “into a collection mechanism for retirement saving; the bulk of the money now resides in IRAs,” something that follows on earlier CRR research.
However, the Investment Company Institute recently reported steady and strong increases in total U.S. retirement assets, clocking in at $26.6 trillion as of June 30, up 1.9 percent from March, accounting for 34 percent of all household financial assets in the United States.
IRA assets totaled $8.4 trillion, an increase of 2.3 percent, and defined contribution plan assets rose 2.2 percent to $7.5 trillion.
Government defined benefit plans held $5.7 trillion in assets, a 1.5 percent increase from the end of March.
Private-sector DB plans held $3 trillion in assets at the end of the second quarter, and annuity reserves outside of retirement accounts were $2.1 trillion.
Specific to defined contribution plans, Americans held $7.5 trillion in all employer-based DC retirement, of which $5.1 trillion was held in 401(k) plans.
In addition to 401(k) plans, at the end of the second quarter, $575 billion was held in other private-sector DC plans, $949 billion in 403b plans, $297 billion in 457 plans, and $526 billion in the Federal Employees Retirement System’s Thrift Savings Plan.
Mutual funds managed $3.3 trillion, or 65 percent, of assets held in 401(k) plans.
With nearly $2 trillion, equity funds were the most common type of funds held in 401(k) plans, followed by $918 billion in hybrid funds, which include target date funds.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and 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. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
