Returns are up and people are saving more. But account balances for the median 401(k) are too low and Americans are still very reliant on Social Security.
How's your 401 looking? A new report shows Americans are saving more, but probably need to do even more.
The bad news: account balances for the median 401 of a person approaching retirement remains very low.Why do we care so much about 401 plans? Because it's the main private savings vehicle Americans have for retirement. More than 100 million Americans are covered by these "defined contribution" plans, with more than $10 trillion in assets.
On those fronts, there is good news. John James, managing director of Vanguard's Institutional Investor Group, called it "a year of progress."Thanks to a change in the law several years ago, a record-high 59% of plans offered automatic enrollment in 401 plans. This is a major improvement: ipreviously, enrollment in 401 plans were often short of expectations because investors had to "opt-in," that is they had to choose to participate in the plan.
Why such a big difference between the average and the median? Because a small group of investors with large balances pull up the averages. Forty percent of participants had less than $20,000 in their retirement accounts.A different way to look at the problem is to ask how much people who are retirement age have saved, because it's an indication of how prepared they are for imminent retirement.
Of course, these balances don't necessarily reflect total lifetime savings. Some have more than one retirement plan because they had other plans with previous employers. Most do have other sources of retirement savings, typically Social Security. A shrinking number may also have a pension. Some may have money in checking accounts, or have stocks or bonds outside a retirement account.A typical annual drawdown for a 401 account in retirement is about 4%.
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