The facts clearly show that IRAs, 401(k)s and similar retirement accounts “are working for most U.S. households, focusing them on the long run, building wealth, and ultimately providing income in retirement.”
“Through these accounts, Americans are navigating difficult economic conditions to boost their retirement savings and strengthen their long-term financial security.”
Aug. 1 ICI Viewpoints post
That’s according to an Aug. 1 ICI Viewpoints post titled, “Americans’ Retirement Savings Show Real Progress,” on the Investment Company Institute’s website.
“Through these accounts, Americans are navigating difficult economic conditions to boost their retirement savings and strengthen their long-term financial security. While there is room for further improvement, that progress is cause for celebration,” the article, written by ICI Economists Steven Bass, Daniel Schrass, Associate Economist Michael Bogdan and Senior Writer Adam Sands concludes.
The post points out that with more than $25 trillion in assets, balances in 401(k)s and IRAs have climbed to or near record highs, helping the average long-term saver build a meaningful nest egg.
“While increases in the cost of living have made it harder to set money aside for the future, retirement savings trends are nevertheless on the upswing, indicating that Americans are focused on and taking a more proactive approach toward their golden years,” the authors write.
The post notes that statistics highlighting data points such as the median 401(k) account balance being around $20,000—suggesting that the typical retiree will run out of money—are misleading. Here’s why:
“First, it captures the full range of account owners—including, for instance, someone in their 20s with an entry-level job and a modest account balance—instead of focusing on older participants with a longer savings history. In reality, 401(k) savers approaching retirement age are in a far better position.”
Next, the authors point out that a single snapshot of a 401(k) balance misses the fact that many households own multiple retirement plan accounts, not to mention IRAs, their homes, and other assets. As with 401(k) participants, long-term IRA investors have benefited from time in the market. At the end of 2023, households that owned IRAs for 20 or more years had average IRA holdings of nearly $400,000, while those owning IRAs for less than 10 years had about one-quarter that amount.
While the post says those growing balances are important, it goes on to say that income replacement is a better gauge of how retirees are faring—and data show they are faring pretty well. ICI’s analysis of tax data shows that—adjusted for inflation, taxes, and retirement savings—the typical 72-year-old replaces over 90% of the income they had in their mid- to late-50s, thanks in large part to distributions from 401(k)s, IRAs, or other retirement plans, in addition to Social Security.
That doesn’t sound like the U.S. is in the midst of a retirement crisis, as many mass media headlines and economists have claimed of late.
ICI cites recent reports from two of the country’s largest 401(k) recordkeepers—Fidelity and Vanguard—showing that total savings rates in the plans they service are registering record highs. Indeed, Vanguard’s annual “How America Saves” report released in June found the average participant deferral rate matched the historic high of 7.4% in 2023 (the median deferral rate was 6.2%). When combined with employer contributions, the average participant total savings rate at plans recordkept by Vanguard kept pace with the all-time high of 11.7% (median 11%), reached the prior year.
In a report released in May, Fidelity revealed 401(k) savers were amongst those with the highest savings rates, reaching a record-high of 14.2%, thanks to both employee and employer 401(k) contributions.
ICI’s post also emphasizes that participation in 401(k)s helps workers think about the long-term and beyond just their current needs. A vast majority of those surveyed (88%) said so, and 80% said knowing they are saving from every paycheck makes them less worried about the short-term performance of their investments.
Read the full ICI Viewpoints post, “Americans’ Retirement Savings Show Real Progress,” here.
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