Average 401k and IRA Balances and Returns Up in 2012

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[2012 returns and balances update] Fidelity Investments, the nation’s largest employer sponsored 401(k) administrator, recently published its 2012 statistics covering 20,200 401(k) plans with 12 million participants, showing that the average 401(k) balance was $75,900. This was the highest end-of-quarter average since the company it began tracking the data in 2000. It is up 18 percent  from $64,300 a year ago. The gains were driven by double digit increases over the last year in the S&P 500, boosting investment returns in 401(k)s.

Both employee 401(k) directed savings and higher employer contributions contributed to the growing balances. The average annual employee contributions grew more than 7 percent over the past five years to 5,900 in 2012. Over the same time period employer contributions including a 401(k) match and profit sharing contributions grew 19 percent from $2,880 in 2007 to $3,420 in 2012.

Additional findings from the 401(k) data showed that more participants increased savings (deferral rates) than decreased it (4.6 percent vs. 2.8 percent). New participant deferral rates ranged from 3.7 percent to 8.4 percent, still well below the recommended average of 10 to 15 percent to secure a comfortable retirement. 401(k) participant contributions also continued to be allocated to more balanced and passive investments, such as target date funds (TDF).

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2011 401K IRA Performance I recently received my 2011 401(k) performance statement and was disappointed to see a -3.2% performance for the year. This is especially the case after my 2010 return of 13.5%. Because my 401k is pretty diversified, the S&P 500 is a good proxy for the level of returns I should be getting. In 2011, the S&P 500 returned about 0.1% (Dow was up 5%). This means my 401k under-performed by -3.3%! Not terrible, but not so great either. I am in a target date fund, so cannot change things up too much, but if the relatively poor performance continues I may need to take a more active role in managing my retirement account.

Fidelity Investments, the nation’s biggest 401(k) administrator, says the average account balance was $69,100 in 2011, compared with $69,400 in 2010. The average slipped despite a slight increase in employee contributions (see maximum limits). The 11.6 million participants in Fidelity’s plans set aside an average $5,750 through paycheck deductions, up from $5,680 a year earlier. That’s more than 8 percent of their annual pay, on average. The amount that employers paid in matching contributions also rose slightly, averaging $3,270 last year. The increase came as more companies restored matches that had been reduced or suspended during the recession. Typically, about two-thirds of annual increases in 401(k) account balances are the result of workers’ added contributions and company matches.

But the balance boost that workers received from higher contributions was offset by factors including investment performance, and fees paid to manage the money and administer plans. The average 401(k) balance tracked the year’s bumpy market returns. At midyear, it reached $72,700, the highest since Fidelity began tracking balances in 1998. The average dropped 12 percent over the next three months, amid growing worries about the global economy and the European debt crisis. Those fears eased late in the year, sparking stocks to climb and boost the average account 8 percent in the fourth quarter.

Fidelity’s latest numbers demonstrate the value of a making saving a habit. Workers in Fidelity 401(k) plans who routinely set aside money from their paychecks with the same employer for at least 10 years had amassed an average $179,100 by the end of 2011. That’s nearly two-and-a-half times greater than the overall average for Fidelity’s 401(k) participants — including workers who haven’t been saving for a long time or discontinued contributions because of economic hardship or a switch to a new employer. (source : Detroit news)

I am willing to bet that unless you employed a very focus and active management strategy your retirement account returns will be highly correlated with the market. Of course retirement plans come in a lot of variety and mixes so it not always easy to gauge relative performance. But as a rule of thumb if your return is greater 7% in absolute terms or if you get 3% above market returns, you have done pretty well.

2012 has started off with a bang – the best returns since 1987 – with my portfolio up about 5% already. The S&P is up a similar amount, so not a bad start if I do say so myself. A number of analysts are predicting a good year with full year returns between 6-8% expected as the global economy recovers and corporations start hiring and spending more freely. So bottom line is to keep contributing as much as you can, while keeping an eye on how your retirement account performs relative to the rest of the market.

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{ 8 comments… read them below or add one }

Ben November 29, 2012 at 11:57 pm

That’s not the “return”, that’s the change in account value. If you want to understand the return, you have to take out the year’s contributions. If the average value goes from $64,300 to $75,900 and the contributions are 5900 and 3420, the return is only 2280, or about 3%, not “18%”.

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Paul September 5, 2012 at 8:44 pm

Target date funds are too broad to invest in with confidence; I was in one of those in 2008-2009
I was in the safest investing category for older employees and lost 80,000 I called the company to find out exactly what my money was invested in and got no straight answers! Just percentages of small caps large caps etc., same as the brochure that the employer had handed out. After many phone calls I found out the entire plan was issued by a Barclay’s an off shore company!

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Paul March 29, 2012 at 3:43 pm

I am in a work IRA where the company match a certain % not much but they add 2 if I put in 6
I have been very fortunate to have put my money into the right mutual funds and have done good this year and have made 18.2% this year and since Oct 1 of 2011 I have a 26% increase.

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NutterIRA January 21, 2012 at 9:19 pm

Anytime you make money than lose it is good. My total 12 year return had been -7.5%. I could have done better by going to the bank and putting in my checking account. I did have +13% percent this year. I use the following losing formula:
100 – my age = What percent I put into StocksAnytime you make money than lose it is good. My total 12 year return had been -7.5%. I could have done better by going to the bank of sealy. I did have +13% percent this year. I use the following losing formula:
100 – my age = What percent I put into Stocks
My age = Percent I put into Bonds and Money Market (90/10)
Stocks = 70% High Cap 10% Mid Cap 10%Low Cap 5% International

My age = Percent I put into Bonds and Money Market (90/10)
Stocks = 70% High Cap 10% Mid Cap 10%Low Cap 5% International

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Z January 21, 2012 at 6:15 pm

wouldn’t your 401k most likely always lag the s&p 500 due to fees?

what’s the expense ratio on your account? i bet that accounts for at least 1-1.5% of the difference.

but if you were in a life cycle fund that’s pretty disappointing results because you probably had some % in bonds, and they had a fairly good year.

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gail January 21, 2012 at 4:16 pm

Andy – At least you are doing better than average when it comes to your 401K balance. According to Fidelity, the largest 401K manager, the average account balance in the U.S. rose to $74,900. While at Vanguard, the average was $79,000. So if you take the mid-point as 77K, you are doing okay. Just watch your rate of return more closely and consider getting out of a target date fund that probably has too much European risk. Stay with American and Asian focused stocks/funds.

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Kirk - Option Alpha January 24, 2012 at 6:08 am

I would actually stick with the target funds and emerging market funds if you are younger. There is so much growth in the developing world that you have to keep adding to this area. I’m sure it will be a tough couple of years now (no doubt about it) but they will bounce back.

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Marcus January 20, 2012 at 11:24 pm

IRA’s “DO NOT” have an “average return”.

An IRA is an acronym (abbreviation) for an “Individual Retirement Account”…..it is a “type of account”…like a checking account, savings account, money market account, investment account, etc.

Typically, the IRA account is used as some type of an “Investment account”…what makes it an IRA,,,versus just calling it an investment account, is the “exemption from current taxation” that the government promises you in return for actually putting money aside for your retirement. The government does this, because they want people to save for retirement and not be destitute (terribly poor) when they get too ill, weak, etc to work any longer. So IRA’s and their special tax exemption (like all retirement-savings accounts) are promises between you and the government…I’ll save for retirement…and government promises to keep their tax-collecting hands off..until you take it out later (or never again if you put money into roth ira).

Okay….now you know WHAT an IRA is.

What provides you with a “return” on your IRA…is NOT the type of account it is. It is the “investment” that your money is placed into “inside the IRA”. Typically banks put your IRA money into a CD or money market account….this is where most people get confused…about IRA/investment…bank employees are not “investment educated” and do not know what I just explained to you above…so many of their customers don’t know this either.

If, you openned an IRA with an “investment firm”…Morgan Stanley, Merrill Lynch, Charles Schwab, E-trade, Ameritrade, etc etc etc…..then your return would reflect the performance of the investment vehicle you placed your IRA money into. Investment firms can invest your money into a WIDE range of investment vehicles…CD, including secondary market ones (means one people are selling prior to maturity date that go back on the market) and from any bank…not just the one you do business with…corporate bonds, mutual funds, annuities, individual stocks, etc etc… that is what determines your risk..or lack of…if you invested into all CD’s. (There “is” risk to CD…though most people don’t know it…if the bank was to go bankrupt (and they have) then the FDIC insurance kicks in..however, it typically takes 3 months to 3 years to get your funds back…and without the interest originally offered in the CD…FDIC does not guarantee your interest…only that you will eventually get all your “principal” back (original $ you put in)

When would you lose money? Simple, if any of the investments you, or your “advisor”, choses not only fails to make you money…but either loses money or the cost of buying it is never recovered. i.e. you buy a stock or mutal funds, or ? and it costs you $100 to buy it….and all you made…was your money back…you lost $100. But risk and financial reward in the stock market is not much different than driving to work, taking a job, eating food from a restaurant…you may become ill, get in an accident, or get fired…but should you never leave the house? Even there, your home could have faulty wiring, slip on a wet spot in the kitchen, etc…..everything in life is a balance or risk/reward. The key is to make “informed” decision with people/things/places your trust…and as all our grandma’s said “never too many eggs in any one basket”.

Sorry so long….but a “complete” answer.

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