Median 401(k) Balance Down to $23,000
(NEW YORK) — At the peak of his retirement savings, around 2006, John Taylor had about $66,000 in his employer-sponsored 401(k)—until the recession and a chain of unexpected events drained his fund completely.
Taylor’s story may sound unthinkable to many American workers who don’t think twice about their employer-sponsored 401(k) plans, which allow workers to set aside untaxed dollars that can accumulate tax-free until retirement. But the Loveland, Colo., 55-year-old’s experience can serve as a reminder for those with short-term memories who experienced major retirement account losses as a result of the most recent recession.
The average 401(k) balance rose to $74,600 at the end of the first quarter, up 8 percent from the same period a year ago among Fidelity Investments’ 11.8 million accounts, the company reported on Tuesday. The balance increased 62 percent since the end of the first quarter 2009, which is considered the low of the market downturn from 2008 to 2009. In the first quarter of 2009, the average balance was $46,200.
Taylor, a native New Yorker, had been a maintenance worker for a small company in Colorado for 19 years until he was laid off in November 2008. Taylor said he contributed about $100 to $200 per month, sometimes sporadically, to his 401(k) while at that company.
While collecting unemployment in 2009, he first pulled about $10,000 out of his 401(k), which had already dwindled to about $44,000, to support his wife, son and two grandchildren.
He collected unemployment until July 2010, which is when he got a maintenance job for a company in Boulder. He was only at his job for 11 days when he had a work accident while trimming a tree, breaking his wrist and causing ligament damage in his left arm.
Unable to obtain another job and with physical injuries from his accident, Taylor said he also relied on workman’s compensation of $240 a week, which ended in June 2011. He was told by his physician and social service worker that he needs to find another vocation.
“At 55, that’s kind of hard to do,” he said.
No longer eligible for unemployment benefits because of claim limits, Taylor said he exhausted his 401(k) savings by January of this year to make car payments and pay for other expenses. He has been eating from food banks, which he said has contributed to his weight gain of 30 pounds.
Taylor is now applying for disability benefits.
When asked if he would contribute to another employer-sponsored 401(k) fund if given the opportunity, he said, “That’s a hard question because I think I would need better financial advice.”
An improving stock market is the main driver behind the increase in the average balance in the first quarter this year, accounting for 80 percent of account balance growth. Participant and employer contribution growth contributed to the remaining 20 percent boost.
The S&P 500 index, though experiencing two straight days of losses, has increased more than 11 percent year-to-date.
Individual and employer contributions also tend to fluctuate based on market performance, Beth McHugh, vice president of market insights for Fidelity Investments, said. Last year in the same period, two-thirds of balance growth was attributable to the stock market while one-third was because of participant and employer contributions.
The median 401(k) balance at the end of this year’s first quarter was $23,000, according to Fidelity Investments’ quarterly report. That’s mostly unchanged from the $24,000 a year ago in the same period. But it’s an improvement from the first quarter of 2008, when the median 401(k) balance was $18,900.
McHugh said she has noticed a growing culture among employers and employees of trying to save more in a smarter way.
Some plans have fees as high as 2 to 3 percent a year, which the employer or 401(k) company has not clearly disclosed.
That will change this summer when financial regulatory reform will mandate greater transparency for 401(k) fees.
Copyright 2012 ABC News Radio