Average balance in 401(k) retirement plans soars over $80K

Green arrow going up above vertical bars

Because of a thriving stock market, increased contributions and smart investing, the average balance in our 401(k) retirement plans hit a record high at the end of the first quarter — January through March of 2013.

That's according to Fidelity Investments, whose quarterly reports are one of the best benchmarks for judging the progress of your 401(k) retirement plan.

The Boston-based mutual fund company analyzed over 12 million accounts that it manages and found that the average 401(k) balance jumped to $80,900 at the end of the first quarter 2013, up from $74,600 at the same time in 2012.

That's an 8.4% increase in a year — not bad.

It looks like we owe the stock market, and ourselves, a thank-you.

Almost two-thirds of the increase over the last year was due to rising stock prices, Fidelity notes, while employee and employer contributions accounted for the other third.

What's really notable is that our balances have increased 75% since the market hit a low during the first quarter of 2009, when the average balance fell to $46,200.

After four years, we're finally coming back from a dismal market, signaling that the financial crisis and Great Recession are moving into the rearview mirror.

It's not a shock that those who fled stocks have fared worse.

For example, Fidelity notes that pre-retirees — those age 55 or older — who rode out the turbulent market currently have an average balance well over twice that of those who fled.

Pre-retirees with 10-plus years at the same employer who stuck with stocks had an average account balance of $255,000 by the end of the first quarter, which means they have almost doubled the value of their plans since the first quarter of 2009 when their average balance dropped to $130,700.

Pre-retirees who fled equities when the market was tanking back in late 2008 and early 2009 saw their plans grow by only 25.9%, leaving them with an average balance of $101,000 at the end of the first quarter 2013.

There's a pretty valuable lesson to be learned from that minority of pre-retirees who abandoned stocks.

“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, the president of workplace investing for Fidelity, said in a news release.

But while holding stocks is crucial to a successful retirement plan, we shouldn't downplay the vital role of increased employee and employer contributions.

The more we save and contribute, the more we allow the magic of compounding returns to make us secure in retirement.
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