May 23, 2013

Fidelity 401(k) Balances Hit Record High

Fidelity counts continued contributions from employees, employers and strong markets for overall gains

Happy times are here again—sort of.

Fidelity Investments released its quarterly analysis of its 401(k) accounts on Thursday, finding that the overall average balance hit another record high.

The analysis, widely considered a benchmark of savers and the industry’s overall health due to the sheer number of accounts and plan assets held at the Boston-based firm, found the average account stood at $80,900 at the end of the first quarter. It represents an 8.4% increase over one year prior when the average balance stood at $74,600 and 75% growth since the market low during the first quarter of 2009, when it dropped to $46,200.

Fidelity counts “continued contributions from the employee and employer as well as the strong equity markets” for the overall gains.

New analysis of 401(k) accounts of pre-retirees (age 55 or older) who had an employment history of 10 years or more with their current employer—and most vulnerable during the last market downturn given their short timeframe to retirement—showed very strong growth over the last four years. Average balance for this group reached $255,000 by the end of the first quarter, nearly double since the market low during the first quarter of 2009 when their balance dipped to $130,700.

“The basic savings principles we encourage workers to adopt, such as saving consistently and holding a balanced portfolio with an appropriate exposure to equities—even when close to retirement—were key factors in driving better outcomes since 2009,” James MacDonald, president of workplace investing at Fidelity, said in a statement. “It’s important to continually remind employees that sticking to this savings philosophy may not always reward in the short-term but may over the long term.”

Unlike pre-retirees that stayed the course, the small percentage of pre-retirees (1.6%) who abandoned equities in reaction to market volatility in either late 2008 or early 2009 and never rebalanced experienced much more modest growth. Their balance grew 25.9% over the same time period with balances reaching $101,000 by the end of the first quarter from $80,200 at the end of the first quarter 2009.

“There is a valuable lesson to be learned from the minority of pre-retirees who abandoned equities altogether and experienced significantly less progress,” MacDonald added. “It underscores the combined importance of a proper asset allocation and savings behavior as they planned for retirement within all that life entails.”

The company says it’s significant to note that nearly two-thirds (65%) of the overall average balance increase over the past year was due to gains in equities–which it says underscores the important role they play in saving for retirement. Just as important were continued contributions made by both the employee and employer which accounted for one-third of the increase in account balance.

Fidelity Investments claims assets under administration of $4.2 trillion, including managed assets of $1.8 trillion, as of April 30.

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