401(k)s hit new records

Fi­delity: Work­ers putting away more in bet­ter mar­ket

Boston Herald - - BIZ SMART -

NEW YORK — How’s your 401(k) do­ing?

Pres­i­dent Trump likes to ask that ques­tion around the coun­try, some­times throw­ing out big gains like 90% or 95%. The av­er­age 401(k) did in­deed hit a record last year, al­though its growth was con­sid­er­ably less than that.

The av­er­age 401(k) bal­ance rose 17% last year to $112,300 from the end of 2018, ac­cord­ing to a review of 17.3 mil­lion ac­counts by Fi­delity In­vest­ments. The av­er­age in­di­vid­ual re­tire­ment ac­count, or IRA, bal­ance rose the same per­cent­age to $115,400.

Those fig­ures are av­er­ages, not me­di­ans, and the typ­i­cal 401(k) might be closer to a quar­ter of that. The top 1% of 401(k) savers has more than $1 mil­lion in each of their ac­counts, which skews the av­er­age higher.

Surg­ing mar­kets around the world were a big rea­son for growth across ac­counts in 2019: The S&P 500 in­dex had one of its best years in decades with a 31.5% re­turn. In­vest­ments of all types logged gains, from junk bonds to stocks from de­vel­op­ing economies.

But work­ers’ bet­ter sav­ings habits also played a big role.

Fi­delity said the av­er­age worker set aside 8.9% of their pay in their 401(k) in the fourth quar­ter, a record. Com­bined with em­ployer matches, the av­er­age to­tal sav­ings rate was 13.5% in the quar­ter, ty­ing its record last reached in the spring of 2019.

“No­body can con­trol the mar­ket, so the be­hav­iors of people con­tribut­ing to their 401(k)s are what get us the most ex­cited,” said Katie Tay­lor, vice pres­i­dent of thought lead­er­ship at Fi­delity. “We have people sav­ing 13.5%, which is re­ally close to the 15% that we rec­om­mend. That’s a great story.”

In many cases, work­ers may not even re­al­ize they’re sav­ing more. Most em­ploy­ers give the op­tion for work­ers to au­to­mat­i­cally in­crease their con­tri­bu­tions each year, with­out hav­ing to do any­thing. Some em­ploy­ers even au­to­mat­i­cally sign up their em­ploy­ees for these auto-es­ca­la­tion pro­grams, re­quir­ing them to opt out if they don’t want their con­tri­bu­tion lev­els to steadily rise.

Such fea­tures are on top of pro­grams where em­ploy­ers au­to­mat­i­cally en­roll new hires in the 401(k) plan. They all lean on the power of in­er­tia to help work­ers build up big­ger nest eggs. It’s a sharp turn­around from ear­lier years when work­ers had to take an ex­tra step to join the 401(k) plan and fill out pa­per­work when­ever they wanted their con­tri­bu­tion lev­els to change.

Con­sis­tent con­tri­bu­tions — and giv­ing them time to grow — are keys to build­ing big­ger port­fo­lios. Among work­ers who have been in their 401(k) plan for 10 straight years, the av­er­age bal­ance rose to a record $328,200, ac­cord­ing to Fi­delity.

AP FILE PHOTOS

SAV­ING GRACE: Spe­cial­ists work at a post on the floor of the New York Stock Ex­change. Be­low, new $1 bills are cut and stacked at the Bureau of En­grav­ing and Print­ing in Wash­ing­ton.

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