Wish your 401(k) were bigger? Take a cue from consistent savers. Out of Fidelity Investment’s 14.5 million 401(k) account holders, 547,000 of them who have had the same 401(k) at the same employer for the past 15 years, have an average account balance of $331,200, up from $43,900 in 2001. The average 401(k) balance across all account holders at Fidelity-administered 401(k)s is $90,600.
“The lesson is to get in when you start your career and save over time,” says Jeanne Thompson, a senior vice president with Fidelity Investments who tracks 401(k) trends. “The market and your contributions together will drive the growth.”
When you look at the 15-year 401(k) veterans by age, the 35- to 39-year-olds have average account balances of $179,000. The average account balance peak is $386,000 for 55- to 59-year-olds, likely because at 59 ½ you can start taking penalty-free withdrawals. That older group is saving the most, $16,200 per year on average, compared to $10,130 average annual savings across all age groups (that’s including employer contributions). See IRS Announces 2017 Retirement Account Limits for how much you can sock away.
The Fidelity data mirrors a recent report by the Investment Company Institute and the Employee Benefit Research Institute that concluded that consistent contributions are key to amassing a big 401(k). The study, What Does Consistent Participation In 401(k) Plans Generate?, found that 3.5 million 401(k) account holders who had accounts at year-end 2007 through year-end 2014 (a consistent 7-year period) accumulated sizeable balances. The consistent group had median and average account balances that were much higher than the broader database of 25 million 401(k) account holders.
At year-end 2014, 26.9% of the consistent group had more than $200,000 in their 401(k) at their current employers, while another 19.3% had between $100,000 and $200,000. In contrast, in the overall database, 10.7% had accounts with more than $200,000 and 9.5% had between $100,000 and $200,000 at year-end 2014. The average account balance for the consistent group was $170,290, more than twice the average account balance of $76,293 among the entire database. The median account balance was $87,418 for consistent participants, more than four times the $18,127 median account balance for overall participants.
The 2008 market downturn pulled balances lower, although diversified portfolios and ongoing contributions helped offset the impact, the ICI/EBRI study shows. Three primary factors affect balances: Contributions, withdrawal and loan activity and investment return.
How can you tilt these factors in your favor? Take the time to do a 401(k) check-up at least annually. More and more employers are incorporating 401(k) check-up reminders into healthcare open enrollment materials, which come out in November at most workplaces. But know you can make changes to your 401(k) at any time during the year.
At a minimum, save to get the full company match—that’s the amount your employer kicks in, which usually depends on whether you contribute and how much. For tips on getting the most of your match, see Billions In 401(k) Match Money Unclaimed. Then try to increase your contribution savings rate each year, until you get up to a joint employer/employee savings rate of 15%. “Small incremental changes over time really make a big difference in the long run,” Thompson says. “People think 1% isn’t going to make a difference, but it really does.”
Avoid taking loans and withdrawals before retirement. See 401(k) Loan Regrets for how much a loan can really cost you.
Consider your investment elections carefully. “You don’t want all your money sitting in cash,” says Thompson. “The market and your contributions together will drive growth.” For the 15-year-savers at Fidelity, 55% of the account balance growth was due to market action, and 45% was due to participation action (contributions, withdrawals, loans).
If you change jobs, enroll in your new employer’s 401(k) right away. “You don’t want a big savings gap,” Thompson says. And consider rolling over your old 401(k) balance into your new 401(k), so it’s easier to keep track of.
