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401(k) accounts show encouraging rebound

May 18, 2011

| Money Rates Columnist

The average balances in our 401(k) retirement savings accounts have gone up 12 percent in the last year to nearly $75,000--the highest level since 1998.

Those estimates come from Fidelity Investments, the nation's largest 401(k) plan provider, and reflect similar gains reported by TIAA-CREFF, the second largest plan provider, and ING. TIAA-CREFF reported savings accounts balances were up 7.4 percent from a year ago, and ING said account balances were up 38 percent from a year ago. As recently as 2002, average account balances stood at $41,300.

According to usnews.com, the average 401(k) account balance administered by Vanguard was $79,077 in 2010, an increase from $78,411 in 2007 and $56,030 in 2008.

Where is the money coming from?

The encouraging increases reflect increased savings but also the performance of the stock market. According to the Wall Street Journal, about two-thirds of the increases in account balances are attributable to gains in the stock market and a third represent increased employer and employee contributions. Many companies that suspended 401(k) matching contributions during the recession have resumed contributions.

The figures also don't take into account other retirement vehicles, including money market accounts and certificates of deposit, which protect a person initial investment while providing a reliable investment return. Interest on even the best cd rates and the best savings accounts are at a historic low, however.

According to Fidelity, the average contribution rate into its 401(k) accounts remained at 8.2 percent of pay, unchanged since 2009 and down since the 8.8 percent rate of 2006 and the 8.9 percent of 2006. The Journal reported that 10 percent of those with 401(k) savings accounts increased their contribution rate in the first three months of 2011--an increase from the 7.6 percent who increased their contribution rate a year ago.

Americans saving more but not enough

Despite the encouraging news about account balances, surveys show that Americans still feel they are not saving enough for their retirements. The Journal reported that 21 percent felt they were on track, and a survey from the Employee Benefit Research Institute found that 70 percent felt they needed to be saving more for retirement.

In addition to losses from the stock market, many of our 401(k) plans were depleted when we had to borrow from them to pay bills during the recession. According to a survey from the Investment Company Institute, that is still happening; more than 18 percent of the nation's plan participants had an outstanding loan, up from 16.5 percent at the end of 2009. Fidelity reported that 22 percent had a loan out.

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