A new study showing that Americans’ average 401(k) balance has risen to $91,300 is being greeted with cheers from some. And, true enough it is the highest balance on record. But the reality is underwhelming. What I found troubling about the study, which is based on mutual fund giant Fidelity’s clients, is that workers and their employers contributed an average $9,670, the most since 2011, but their ending balances rose a measly 2 percent. Think about it, 2014’s market rocketed 11.4 percent, but workers’ 401(k)s barely budged. To be sure, most retirement investors don’t have every nickel and dime in stock mutual funds and ETFs. That would violate every premise of asset allocation. But a 2 percent return in an 11 percent world? No wonder so many of us are frustrated with our retirement nest eggs.
What’s more $91,300 is only a start. Consider if you retired today with that amount as your balance. If you followed the usual retirement practice of taking 4 percent out of your nest egg each year, you’d net $3,652 a year or $304 a month. Add in average monthly Social Security of $1,294 and your monthly budget is just $1,598. That’s hardly enough to relax on a beach with a drink in your hand.
Truth is, the way we plan and save for retirement cries out for reform. Savers take it on the chin for not setting aside enough dough, and that is true enough. But we also pay far too much in fees for the privilege of saving in a 401(k) and our choices are too often too narrow.
However, there is good news. Fidelity says that savers often have more than one account. IRA balances for 2014 were $92,200.