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How Much Are We Really Saving in Our 401(k)s?


Alicia Munnell, the director of the Center for Retirement Research at Boston College, is a weekly contributor to “Encore.”

Most people approaching retirement who are lucky enough to have an employer-sponsored retirement plan will have a 401(k).  This pattern is particularly true in the private sector where defined contribution plans dominate; most public sector workers continue to be covered by traditional defined benefit plans, which pay benefits for life based on years of service and final salary.

So how much have people accumulated in their 401(k)s?  The best source of nationally representative data is the Federal Reserve’s Survey of Consumer Finances (SCF).  Although the most recent SCF information is from 2007, the data probably give a pretty good indication of today’s balances.  The reason is that the impact of the 50-percent decline in equities between October 2007 and March 2009 has probably been roughly offset by the bounce back in the stock market plus three years of new 401(k) contributions.

In theory, a typical worker who ends up at retirement with earnings of slightly more than $50,000 and who contributed 6 percent steadily with an employer match of 3 percent should have about $320,000.  The bottom bar in the Figure shows the amounts that the typical worker would have at each age along this path of accumulation.

In fact, the typical individual approaching retirement had only $78,000, far short of the simulated amount.  (Note that the reported amounts include holdings in Individual Retirement Accounts (IRAs) because these balances consist mostly of rollovers from 401(k) plans.)  Moreover, those at younger ages do not appear to be on track in their accumulations either.

How do these numbers compare to others floating about?  Vanguard’s median balance for 2009 for participants age 55-64 was $53,586.  These balances are somewhat lower than the SCF data reported in the figure because the companies have data only for assets in the 401(k) plans under their management and therefore cannot include IRA balances.  The Employee Benefit Research Institute, which has a sample of 20 million participants, only reports means by age, and the 2009 figure for participants in their 50s was $139,932.  Means tend to be higher than medians because the distribution of balances is skewed towards those with higher incomes.  Applying Vanguard’s ratio of mean to median for those 55-64, suggests an EBRI median of about $60,000 for those in their 50s.  The point here is not to reconcile balances to the dollar, but to establish that those approaching retirement have relatively modest amounts in their 401(k) plans.

Using the SCF figure of $78,000, 401(k) balances will produce about $400 per month of income in retirement if the participant buys a joint-and-survivor annuity; $260 per month if the participant applies the “4-percent” rule.

The hope for the future is that workers in younger age groups will have spent more years covered by 401(k) plans and have been exposed to more automatic provisions, such as auto enrollment and auto escalation in the default contribution rate, than the early boomers. But it’s clear we have a long way to go before 401(k)s will provide meaningful retirement income.


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    • Another brilliant sattement from the Primerica Moron Club!!! Here’s a hint guys, read one book on life insurance and you’ll understand how and why it work and why you need cash within the policy. Here’s a hint, the older you get the closer you are to death, hence a higher cost of ins this is why your renewal rates for term are so high after the 20 or 30 year level period expires!!! Get it?

    • “I don’t think that the current avriseon to immigrants is necessarily based on our growing welfare state”…Gee methinks I have to wonder a bit about that particular statement…From F.A.I.R.: (1st paragraph of executive summary): This report estimates the annual costs of illegal immigration at the federal, state and local level to be about $113 billion; nearly $29 billion at the federal level and $84 billion at the state and local level. The study also estimates tax collections from illegal alien workers, both those in the above-ground economy and those in the underground economy. Those receipts do not come close to the level of expenditures and, in any case, are misleading as an offset because over time unemployed and underemployed U.S. workers would replace illegal alien workers…

    • After three smashings coming within 10 years, which you’ve earned nothing other than stomach aches, why would anyone place their hard earned money into this casino called the markets for retirement ?

      You really have to be an idiot or a fool to listen to any of this rubbish…. if you have not noticed every asset class possible, expect for what Nancy Pelosi invests in, up 66% last year alone,
      has been devastated. Job gone, if have job less wages, retirement smashed, housing smashed, savings being eaten up with inflation and taxes.. unreal.

      Please don’t place your retirement into this crap… and then to add insult to injury have the tax man come and grab most of it… if you happen to get lucky and make anything you instantly have a partner in the gambling… the IRS.

      What beauty if you win they win. But the risk of loss is your alone… you won’t get bailed out. And you are waiting for government idiots to do what for us ????? Keep waiting.. they got us into it !!! And you expect them to get us out ?

      I think the new formed gangs, thugs, gangsters and flash gangs now have the right idea… just grab whatever you can and try to get away with it… no one went to jail for the mortgage debacle that I know of… this country is in moral peril and will collapse, take a look around folks.

    • 401K’S are a RIP-OFF. The irs says why dont you put off paying taxes until your Retired, Do you think taxes are going up or down in the future? So if you have a big nest egg you will be paying MORE in taxes. Not to mention when you die your family will get hit with a Huge estate tax bill. This is a win win for the government. Your better off paying taxes now and putting that money in NON taxable investments.

    • I was on a 401k committee where I previously worked and we wrestled with similar issues . . . at a slow pace I would admit.
      The comfort of the CFO and ensuring we weren’t getting sued were very high on our priority list. Returns to the participants were sort of important as well. We were strongly discouraged from offering any advice or investment guidance directly.
      Most corporations hire a “3rd party advisor” to put someone or something between them and the investor service organization (that in turn offers a plan with mutual funds from their, and other, organizations). This 3rd party advisor group supposedly provides education and guidance, but in reality does very little except ensure the sponsoring organization doesn’t get sued.
      Note that to pay the overhead of the advisor service, not to mention the investor service organization, the funds sold to our co-workers and ourselves within the 401k were those with b, c, and d-shares. Essentially, we paid an extra 75~100 basis points a year for the same mutual funds that one could buy directly from the fund family. That “vig” was what paid for the extra “house” expense for the record-keeping and the advice, but mostly it was there so that if a few workers made bad investment decisions, our company wouldn’t get sued.

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.