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401(k) Balances Double, But Concerning Trend Surfaces


Since the market hit the bottom in March 2009, the average 401(k) balance has nearly doubled in size, but new data shows a concerning number of people cashing out when they change jobs.

Since the market hit the bottom in March 2009, the average 401(k) balance has nearly doubled in size, but stocks aren’t the only source of increase: close to a quarter of account growth came from employee and employer contributions.

Fidelity Investments announced that at the end of the fourth quarter in 2013, the average 401(k) balance hit a new record high of $89,300, which is up 15.5% year over year. For pre-retirees age 55 and older, the average balance was $165,200. When the market hit lows in 2009 the average count held just $46,200.

While the majority of growth among 401(k)s came from the stock market, that accounts for just 78%. The remaining 22% came from contributions and company matches.

The retirement picture is looking even better for those who have both a 401(k) and an IRA with Fidelity. These investors have a combined balance of $261,400, which is up 16% for a year earlier.

Amidst the good news though is some concern: more than a third of participants cashed out their 401(k) when they left a job in 2013. Those between the ages of 20 and 39 were the biggest culprits with 41% cashing out. According to Fidelity, the average cash out value was nearly $16,000.

People who changed jobs had the choice of taking the money, keeping it in the existing plan or rolling it into another tax-advantaged account. Those 401(k) investors who cashed out forfeited years of potential investment growth.

“Everyone’s personal financial situation is different and there are times when a person must have access to cash,” James MacDonald, president of Workplace Investing at Fidelity, said in a statement. “However, we urge all investors—especially young savers with years of potential investment gains—to keep their 401(k) savings working for them in a tax-advantaged retirement account when changing jobs.”

For example, a 30-year-old who cashed out the $16,000, retires at 67 and lives until age 93 could actually lose $471 a month in retirement income cash flow. Plus, upon cashing out, people pay federal and state taxes, plus a 10% penalty for early withdrawal. According to Fidelity, that $16,000 would really be $11,200 after all the money is taken out.

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