New data released today by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) shows that younger participants and new hires are more keen on 401(k) retirement plans.
The research finds that, at year-end 2022, 40% of 401(k) plan participants were in their twenties or thirties, and 23% were in their forties, with the median age of participants in the 2022 database being 44 years old.
Participants just starting out their careers and lean towards 401(k) accounts. In 2022, 48% of the participants in the database had five or fewer years of tenure, including nearly a quarter with two or fewer years under their belt.
Older participants tend to shy away from these accounts, with just 23% of participants being in their fifties, and 14% in their sixties.
401(k) account balances vary
At year-end 2022, the average account balance was $70,320 and the median account balance was $15,331, yet EBRI reports that balances varied widely among participants. According to the findings, over three-quarters of participants had account balances lower than $70,320, and 42% had account balances less than $10,000. Another 17% accumulated balances over $100,000.
This variation reflects several factors, including age, tenure, salary, contribution year, rollovers from other plans, asset allocation, withdrawals, loan activity, and employer contribution rates. For example, as reported by EBRI, older participants tend to have larger account balances due to years of accrued savings. Groups in their fifties and sixties held 64% of total 401(k) assets, whereas participants in their twenties and thirties attained 13% of assets.
Younger participants invest in equities
EBRI’s report finds that younger 401(k) participants tend to invest in equities rather than older participants and have increased their focus on the investments since the financial crisis in 2008. According to EBRI, younger participants had 90% of their 401(k) plan assets invested in equities, compared with 57% of 401(k) plan assets among participants in their sixties.
At year-end 2022, 3% of 401(k) plan participants held no equities, down from 13% at year-end 2007. Younger participants were also likelier to hold equities and in 2022 compared to 2007.
Younger participants also favored balance funds, while older participants were likely to invest in fixed-income securities such as bond funds, GICs and other stable value funds, or money funds, added EBRI in its research. The findings show that among participants in their twenties, the average allocation to equity and balanced funds was 94% of assets, compared to 72% among participants in their sixties.
Aside from equities and balanced funds, younger participants also preferred target-date funds (TDFs). Specifically, among participants in their twenties, 66% of their 401(k) assets were invested in TDFs at year-end 2022; among those in their sixties, 32% of assets were invested in target-date funds.
TDFs continue to be the most popular fund option—as of year-end 2022, 68% of 401(k) plan participants in the EBRI/ICI 401(k) database held target-date funds, with these funds representing 44% of total plan assets.
EBRI and ICI’s dataset has collected information on 401(k) plan participants from 1996 to 2022, and contains data on 83,630 401(k) plans with $0.9 trillion in assets and 12.3 million participants.
SEE ALSO:
- 9 Key Findings from EBRI’s 2024 Retirement Confidence Survey
- Workers and Retirees Report First Dip in Retirement Confidence Since 2008 Recession: EBRI
- Nearly Half of Private Workers Participate in DC Plans: EBRI