Data & Research November 5, 2018

Fidelity Analysis Shows Advantage of Long-Term Savings

In the past 10 years, the average 401(k) balance has grown 87%, from $56,900 in the third quarter of 2008, Fidelity Investments reports.

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The average 401(k) balance reached an all-time high of $106,500 in the third quarter, according to Fidelity Investments. This surpasses the previous high of $104,300 in the fourth quarter of 2004 and is a 87% increase from a decade ago, when the average 401(k) balance was $56,900.

The average individual retirement account (IRA) balance reached $111,000, a 4% increase from the third quarter and more than double the average of $52,000 a decade ago. The average 403(b) balance also reached a record high of $85,500, nearly double what it was a decade ago ($43,300).

The number of people with $1 million or more in their 401(k) reached 187,000 at the end of the third quarter, a 41% increase from a year ago, when they totaled 133,000 and nearly 10 times the 19,300 401(k) millionaires 10 years ago.

The average contribution rate reached 8.7%, the highest since the fourth quarter of 2006. Women contributed an average of 8.5%, a record high, and 32% of female 401(k) investors increased their contribution rate over the past year, compared to only 14% who did so a year ago. IRA contributions among female Millennials also increased, by 19%.

Half of 401(k) accounts (50.4%) now hold 100% of their assets in a target-date fund (TDF). Thirty percent of all 401(k) assets are in TDFs, a significant increase from 9.8% a year ago. Fifty-one percent of all new 401(k) assets go to TDFs. Among 403(b) savers, 62% are invested in a TDF.

Among 401(k) savers who have consistently been in their plan for five, 10 or 15 years, the average balance among Millennials is $80,000. Among all workers who have participated in their plan for five consecutive years, the average balance is $221,200, more than double the average of $103,700 five years ago. Among Millennials in this category, the average balance reached $82,000, four times the average balance of $20,600 five years ago.

Among those who have participated in their plans for 10 years, the average balance reached $305,400, nearly five times the average balance of $65,700 10 years ago.

For those who have been in their plan for 15 years, the average balance reached $400,300, more than eight times the average balance of $47,800 15 years ago.

“One of the few positive outcomes from the financial crisis was that it caused individuals to take a closer look at their retirement accounts and educate themselves on some of the positive steps they should take to help protect and grow their investment savings,” says Kevin Barry, president of workplace investing at Fidelity Investments. “Combined with some of the plan design benefits of the Pension Protection Act, we’ve seen an increasing amount of positive savings behavior over the last 10 years. Most individuals will go through several periods of market volatility in their savings career, so it’s important to stay the course.”

Client Service November 2, 2018

Tweaks to Retirement Plan Websites Can Boost Savings

They can also prompt participants to make other important improvements to their savings strategies, Voya Financial learned.

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The Voya Behavioral Finance Institute for Innovation, in conjunction with Carnegie Mellon University, the University of London and UCLA, decided to conduct a study to determine if relatively simple adjustments to a retirement plan website would have an impact on participants.

The scientists explored three relatively simple changes. First, they moved important plan information, such as information on the default savings rate, closer to where the individual was prompted to act. Second, they simplified and standardized language associated with enrollment options. And, third, they tested whether enrollment is affected by replacing standard orange-colored buttons associated with each enrollment option with traffic-light colors. The idea is that such colors could shift behavior by either focusing attention on a specific option or by conveying an implicit recommendation. In one set of conditions tested, for example, the most personalized option was presented as green, the automatic option was presented as yellow, and the decline option was presented as red. 

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The findings reveal that these changes inspired participants to personalize their enrollment, to take advantage of the company match and to increase their savings. According to researchers, with such changes, the number of participants who personalized their enrollment increased by 15%. Among this group, the average deferral rate was 7.8%, compared to 3.4% for those who accepted automatic enrollment.

The enhancements resulted in a 19% increase in the share of employees who took advantage of the company’s full match. The design changes also boosted the overall contribution rate by 62 basis points.

“When it comes to helping workers with their retirement security, the industry has historically focused on automatic enrollment and providing generous match incentives as the primary tools for moving them in a positive direction,” says Charlie Nelson, CEO of retirement and employee benefits at Voya Financial. “While we should continue to apply these important strategies, this latest research suggests that making simple adjustments to website architecture presents another promising way to improve the choices of auto-enrolled workers.”

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