Pre-retirees (age 55 or older) who were with their current employer 10 years or more contributed an average of 10.3 percent of their annual salary to their 401(k) accounts during the first quarter of 2013—more than 2 percentage points higher than the average 8 percent for all workers. These contributions, combined with pre-retirees’ average employer contribution of 4.5 percent, brought their average total contribution rate to 14.8 percent, according to Fidelity Investments' most recent quarterly analysis of the 401(k) accounts it manages.
Furthermore, 14.4 percent of pre-retirees made 401(k) catch-up contributions during the first quarter. Beginning in the year they turn 50, employees can make catch-up contributions of up to $5,500 per year in addition to their 402(g) annual contribution limit, which is $17,500 for 2013.
The average balance for pre-retirees reached $255,000 by the end of the first quarter of 2013—that’s nearly double since the market low during the first quarter of 2009, when their balance dipped to $130,700.
Staying Invested Pays Off
“The basic savings principles we encourage workers to adopt, such as saving consistently and holding a balanced portfolio with an appropriate exposure to equities [stock investments] even when close to retirement, were key factors in driving better outcomes since 2009,” said James M. MacDonald, the president of Workplace Investing at Fidelity. “It’s important to continually remind employees that sticking to this savings philosophy may not always reward in the short term but may over the long term.”
Unlike pre-retirees who stayed the course, the small percentage (1.6 percent) who abandoned equities for cash or fixed income (bond) investments as the stock market plunged in late 2008 through early 2009, and never rebalanced back into equities, experienced much more modest growth. Their account balances increased 25.9 percent from $80,200 at the end of the first quarter of 2009 to $101,000 by the end of the first quarter of 2013.
“There is a valuable lesson to be learned from the minority of pre-retirees who abandoned equities altogether and experienced significantly less progress” as the stock market rebounded after 2008-09 and hit new highs in 2013, said MacDonald. “It underscores the combined importance of a proper asset allocation and savings behavior as they planned for retirement.”
Also critical to account growth were continued contributions made by both the employee and the employer, which accounted for one-third of the increase in workers' average account balance, according to Fidelity.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Match Thresholds and Default Rates Affect Savings, SHRM Online Benefits, May 2013
Changes in 401(k) Plans Spur Higher Participation, SHRM Online Benefits, October 2012
Encourage Employees to Defer Adequate Pay to Their 401(k), SHRM Online Benefits, May 2012
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