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Data & Research July 30, 2015
Total 401(k) Contributions Reach Record Levels
But average account balances dipped slightly in second quarter, Fidelity says.
Reported by Lee Barney
For the trailing 12 months ending in the second quarter, total contributions, including company match, to 401(k) plan participant accounts reached $10,180, up from $9,840 at the end of the first quarter, according to Fidelity Investments. This is the first time that trailing one-year contributions surpassed $10,000.
However, the average 401(k) account balance dipped slightly, by 0.76%, to $91,100 at the end of the second quarter, from $91,800 at the end of the first quarter.
The average 401(k) loan balance rose to $9,720 at the end of the second quarter, up 0.93% from $9,630 at the end of the first quarter and 2.3% from $9,500 a year ago. Fidelity attributed the increase in loans to the rise in account balances.
Baby Boomers Overweight in Equities
The average account balance has risen 50% in the past five years, primarily driven by the booming stock market, Fidelity said. However, this has led to an increased exposure to equities in many 401(k) accounts, which could leave investors overly exposed in the event of a market downturn, Fidelity said.
Eighteen percent of people between the ages of 50 and 54 had a stock allocation at least 10 percentage points higher than recommended in the second quarter, and 27% of people between the ages of 55 and 59 had such exposure, Fidelity said. Furthermore, 11% of people in the 50-54 age bracket had 100% of their 401(k) assets invested in stocks, and 10% of people in the 55-59 age bracket had 100% of their assets in stocks.
“One thing we learned from the last recession is that having too much stock in your retirement account can expose your savings to unnecessary risk,” says Jim McDonald, president of workplace investing at Fidelity. “It’s the hidden danger that many workers are unaware of. This is especially true among workers nearing retirement, who should be taking steps to protect what they’ve worked so hard to save.”
Individual retirement account (IRA) balances increased to $96,300 at the end of the second quarter, up 2.4% from $94,000 at the end of the first quarter and up 4.1% from $92,500 at the end of the second quarter of 2014, according to Fidelity. The average IRA contribution fell to $2,690 at the end of the second quarter, down 14.6% from $3,150 at the end of the first quarter. Fidelity attributed this to the significant number of people making contributions to their IRA in the first quarter to meet the Internal Revenue Service deadline for claiming contributions on tax returns.