Americans saving for retirement may be behind, but they're looking to catch up. The combination of a stronger market and ongoing contributions by participants has increased account balances by a large percent.
Americans saving for retirement may be behind, but they’re looking to catch up as another survey reveals that retirement plan account balances were up by big numbers in 2012.
Vanguard’s survey of its 401(k) retirement plan participants showed that the average plan balance was up by 10% in 2012 — that’s slightly better than the numbers reported by Fidelity Investments. An analysis by Fidelity at the end of May revealed that the average balance for its 401(k) plan participants was up 8.4% in 2012.
While Fidelity’s average balance hit a record high of $80,900, it was slightly behind Vanguard’s average of $86,212. Both firms attribute the huge increases in plan balances to ongoing contributions by participants and the market’s strong returns.
“Some may look solely at plan account balances and underestimate the retirement readiness of Americans, saying that most of us still aren’t financially prepared for retirement,” Steve Utkus, director of the Vanguard Center for Retirement Research and co-author of Vanguard’s How America Saves, said in a statement. "But when you look at the data comprehensively, the fact remains that many Americans are doing a good job accumulating private savings to supplement Social Security in retirement."
According to Jean Young, co-author of How America Saves, there is an important shift of participants — who may be inexperienced investors — completely handing their portfolio construction over to a professional or getting advice from professionals.
“While we are seeing good news overall in the retirement planning habits of participants, many Americans are still not saving enough for the future,” Young said. “Simply put, people need to save more and save more now.”
However, Vanguard reported that many participants are strong savers, with one-fifth saving 10% or more, 11% saving the maximum allowed and 15% of those over the age of 50 making catch-up contributions. The firm recommends that, depending on income level, participants annually save 12% to 15%.
The report also found that although 30% of plan participants could have taken their account as a distribution because they left their employer, the majority (82%) chose to preserve their plan assets. These participants either remained in their employer’s plan or rolled over their savings into an IRA or a new employer’s plan.