Study Reveals New Info About Your 401(k) Balance | American Funds

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DECEMBER 05, 2016

Three Cheers for Your 401(k) Balance: New Study Reveals the Power of Retirement Saving

New research reveals how steady paycheck-by-paycheck saving in your 401(k) can help you build a sizeable retirement nest egg.

$130,493 — Average 401(k) balance for participants who contribute consistently after four years

Have you ever wondered whether it’s worth socking away dollars in your retirement account? Here’s some powerful evidence that might just keep you on track.

A recent survey by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) found that the average retirement account balance for workers who participated consistently in 401(k) plans from the end of 2010 to year-end 2014 grew at a compound annual average rate of 15.5% to a sizable $130,493. (The change in account balance includes employee and employer contributions, withdrawals, loan activity and investment returns).

“This number shows the power of consistent participation in a 401(k) plan,” said Sarah Holden, ICI’s senior director of retirement and investor research.

The EBRI/ICI study looked at 8.8 million employees who remained in the same job, with the same 401(k) plan, from year-end 2010 through 2014 as opposed to a larger EBRI/ICI database of 24.9 million workers who are simply 401(k) participants.

Examining the smaller group of “consistent participants” provides a clearer picture of the power of 401(k) plans than looking at the larger group, the researchers said. That’s because the larger group includes people who entered and left the database as they changed jobs or retired. Those types of activities might bring the average retirement account balance down.

The 8.8 million “consistent participants” included retirement savers of all age groups, from workers in their 20s to 401(k) investors in their 60s. About a third were in their 50s in 2014 and 29% were in their 40s.

Nearly one in five (19.5%) had more than $200,000 in their 401(k) plan accounts at their current employers, while 16.1% had accumulated between $100,000 and $200,000.

“By studying the experience of workers who participate consistently across several years, this study shows more accurately the extent to which steady, paycheck-by-paycheck saving and compounding investment returns can help workers accumulate a sizable retirement nest egg,” Holden said.

“EBRI/ICI Study Reveals Accumulation Potential of 401(k)s by Looking at Consistent Participants’ Balances.” Employee Benefit Research Institute press release. September 8, 2016.

“What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Plan Account Balances, 2010–2014.” Employee Benefit Research Institute Issue Brief. September 8, 2016.

“The ‘Secret’ To 401k Participant Success.” 401k Specialist online magazine: September 11, 2016.

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