From the September 2007 issue of Research Magazine • Subscribe!

September 1, 2007

U.S. Nest Egg: $16.4 Trillion

The Investment Company Institute, the mutual fund trade group, says savings and market gains have helped push U.S. retirement savings to $16.4 trillion as of the end of 2006. That is an 11 percent increase over the 2005 level and a 55 percent improvement since 2002.

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Retirement Trends

The latest ICI/EBRI report says:

Most 401(k) assets are in stocks: About two-thirds of 401(k) participants' assets are invested in equity securities in equity funds, the equity portion of balanced funds and company stock; the remaining third is held in bond, money market funds and stable value assets; and this asset breakdown has changed little in the past decade.

Company-stock holdings in 401(k) plans keep dropping: The portion of retirement accounts held in these investments stands at 11%, a 2% drop from a year ago, continuing a trend that began in 1999.

New employees want lifecycle and lifestyle funds: Across age groups, many new or recent hires put 401(k) assets into balanced funds; these investments represent 24% of plan assets held by workers in their 20s, up from 19% in 2005 and some 7% in 1998.

401(k) loans are modest: 18% of all 401(k) participants eligible for loans are taking them, and most loans tend to be small (12% of the remaining account balance, on average).

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According to the ICI, retirement savings -- money held in defined-contribution plans, individual retirement accounts, annuities, public pension plans and private defined-benefit plans -- now represent about 40 percent of the financial assets owned by U.S. households vs. 24 percent two decades ago.

Americans hold about 25 percent of their retirement savings in mutual funds kept in defined contribution (or DC) plans and IRAs, or some $4.1 trillion. Mutual funds manage 52 percent of assets in DC plans and 47 percent of IRA holdings.

"Americans continue to focus on saving for retirement and that is encouraging news," said Sarah Holden, ICI's senior director of retirement and investor research.

In recent years, American workers investing in 401(k) accounts for the past seven years saw their accounts rise 8.7 percent a year, according to a separate study put out by the ICI and the Employee Benefit Research Institute (EBRI). The median, or midpoint, account balance rose 15.1 percent annually, the report notes.

The EBRI/ICI 401(k) database indicates that the average account balances rose to $121,202 at year-end 2006 from $67,760 at year-end 1999 for participants who kept their accounts for the entire period. Among the same group, the median, or middle, account balance grew to $66,650 at year-end 2006 from $24,898 at year-end 1999.

A significant trend that the ICI notes in its first study -- The U.S. Retirement Market, 2006 -- is that close to two-thirds of Americans' retirement assets are held in employer-sponsored retirement plans, including both DC and defined benefit, or DB, plans. (A large chunk of assets held in IRAs originates in employer plans that are rolled over.)

Assets in DC plans and IRAs have grown more rapidly than assets in other types of retirement plans, rising 15 percent in 2006 vs. 8 percent in other retirement plans. Combined, assets in defined contribution plans and IRAs total 51 percent of retirement assets, up from 39 percent in 1990.

As for lifestyle and lifecycle funds, strong growth continues to be the story. These funds experienced a 50 percent increase in 2006 to $303 billion, after rising 57 percent in 2005.

The shift to lifestyle and other products, according to ICI's Holden, reflects a broader shift in U.S. retirement savings. "We see a trend toward diversification of asset allocation as new hires are less likely to invest in company stock and increasingly likely to invest in balanced funds, which include lifestyle and lifecycle funds," she explains.

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Janet Levaux is the managing editor of Research; reach her at jlevaux@researchmag.com.

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