September 8, 2020
By Rahul Iyer
Considering the importance of retirement saving, it is good to have some way to analyze how you are doing in terms of your account. There are more than 96 million Americans who have the opportunity to participate in an employer-sponsored retirement plan. You may be wondering how well your savings stack up against other contributors. In this article, we will discuss the averages of those who contribute to the pool of $5.3 trillion invested in 401(k)s.
Fidelity reported that the average annual employee 401(k) contribution was $6,940 in 2019. This represents only what the employee contributes. In 2020, the annual contribution limit for 401(k)s is $19,500. If you are 50 or older, you can contribute up to $26,000.
The most celebrated feature of 401(k)s is that employers can contribute or match the contributions of employees. This is practically free money towards your retirement fund. According to data from Fidelity, the average contribution from employers is $4,040 annually. Taken this and the employee contribution into consideration, the average total annual saving of U.S. participants is $10,980.
There are several formulas used to determine employer matching. The formula that is most used is 50% of employee’s contribution up to 6% of the employee’s salary. The average in America is 4.2% of pay.
The average 401(k) plan give participants the opportunity to choose from between 8 and 12 investments options. These options typically include stocks, bonds, and money market funds. It has been reported that up to two-thirds of the 401(k) plans available offer target-date mutual funds.
The factors that determine the return of a 401(k) are numerous. It is largely based on the investment option you select, how well the stock market performs, and the fees involved in the 401(k) plan. Finding an average annual 401(k) return is challenging. Vanguard supplied an average based on the period 2012 to 2017. The average they reported was 10.2%.
Most people have no idea of the fees involved in their 401(k) plan. A recent survey revealed that a third of employees believed that there are no fees. The average fees related to 401(k)s is between 0.2% and 5% of the participant’s balance. Experts and analysts suggest that the larger the plan, the lower the fees. One thing to note is that employers typically absorb some of the fees; however, a 2019 survey from Callan Institute reported that in 32% of plans, the employee is tackling 100% of the fees.
At the end of March 2019, the average 401(k) balance was recorded at $103,700. Do not be misled by averages. There are several factors to consider including age and the length of time an employee serves. ICI and EBRI report that participants in their 40s who have served for 2 years or less was around $20,000 at year-end 2016. On the other hand, individuals with tenures between 5 and 10 years had an average of almost $70,000. $167,000 represents the average balance of individuals with 20 to 30 years of service at the same company.
If you find that you are far below a number of these averages, do not be discouraged. Remember that there are several factors to be considered when looking at averages. Our advice to you is to ensure that you are maximizing your plan. If you have not yet started to contribute to a 401(k) plan, now is the time to begin, and Lendtable can help with that!