Amid rocky market, 401(k) savers eked out gains in 2Q

Retirement savers have eked out steady gains this year, even as the stock market turned increasingly volatile amid uncertainty over the trade war between the U.S. and China and fear of a global economic slowdown.

The average 401(k) plan balance rose 2% to $106,000 in the second quarter versus a year earlier, according to new data from Fidelity Investments drawn from more than 30 million retirement plan accounts.

In 2016, about 55 million American workers were active 401(k) participants, according to the Investment Company Institute.

Most of the gains came from employees setting aside more of their pay for their retirement plans. The average employee contribution rate rose to 8.8% in the second quarter, a record level. That's up from 8% a decade ago, according to Fidelity.

"While we're seeing the market certainly play a role, the other part is that employees are saving more, employers are contributing more," said Meghan Murphy, vice president at Fidelity Investments.

All told, nearly one third of savers increased their contribution to their 401(k) plan in the second quarter, Fidelity said.

Boosting your contribution rate, even by 1 percentage point, can make a big difference to a 401(k) over a career. Consider a 25-year-old who is contributing 4% a year, with an equal contribution from their employer. If they bump up their savings rate by 1 point annually until reaching 15% they would see their retirement savings roughly double by retirement age, according to Fidelity.

The amount of money employers put into their employees' retirement accounts also increased last quarter. The average employer contribution rose to 4.7% in the second quarter. That's up from about 3.9% a decade ago, Fidelity said.

Fidelity recommends a total savings rate of 15%, including both the employee's and the employer's contributions.

Another factor behind the gains is that more companies are automatically enrolling their employees in 401(k) plans.

More than a third of employers now enroll new hires into 401(k) plans and set them up to automatically boost their contributions each year, Fidelity said.

That trend has gathered pace over the last decade. Only 17.3% of employers used automatic enrollment 10 years ago.

At the end of the second quarter, more than 20% of employers that used automatic enrollment enrolled employees at a contribution rate of 6% or higher. The 3% contribution rate is the most popular among employers, Fidelity said.

The stock market's gains this year have helped push the number of 401(k) and individual retirement accounts with balances over $1 million to a new high. At the end of the second quarter, there were 196,000 such 401(k) accounts and 179,700 IRAs, Fidelity said.

The longest bull market since World War II has been good for longtime retirement account savers.

In the second quarter, the average 401(k) plan balance for accounts going back at least 10 years hit $305,900, or more than five times the average balance 10 years earlier.

Another factor keeping average 401(k) balances growing is fewer savers are borrowing against their 401(k) portfolios. The number of people with an active retirement plan loan declined to 20.1% this year. It was at 22.6% in 2013, Fidelity said.

Although continued stock market volatility doesn't bode well for retirement account portfolios, savers have not rushed to take a more hands-on role on their accounts.

"We have not seen a lot of increased activity as far as rebalancing or exchanges," Murphy said. "We tend to see less activity nowadays when there is market volatility because so many people are invested in a target date fund or using a professionally managed account."

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