Balances in 401(k) accounts are much, much larger among those who have been regular retirement-plan participants in recent years, continuing the recovery from the stock market plunge of 2007.
Jack VanDerhei, research director for the Employee Benefits Research Institute (EBRI), conducted a review for U.S. News of the savings behaviors of the 20 million account holders it tracks for research purposes. EBRI looked for account holders with active 401(k)s at the end of 2009 who have continued to contribute to their plans. It then measured the percentage changes in this group's average account balances during the two years ending in December 2012. The average gain during this period for all continuously active plan participants was 56 percent.
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Finally, EBRI tallied these changes for different age groups and took into account how long people in those age brackets had been investing using 401(k)s:
People in plans fewer than five years showed the most gains between the end of 2009 and 2012. Average account balances for this group, by age brackets, rose 143 percent for those ages 25 to 34, 121 percent among people ages 35 to 44, 106 percent in the 45-to-54-year-old group, and 93 percent among continuous plan participants ages 55 to 64.
Participants in plans for five to nine years showed balances up 83 percent (25-34 age range), 72 percent (35-44), 65 percent (45-54), and 62 percent (55-64).
Participants in plans for 10 to 19 years showed balances up 55 percent (35-44), 49 percent (45-54), and 46 percent (55-64).
Participants in plans for 20 to 29 years showed balances up 40 percent (45-54) and 37 percent (55-64).
Plan increases are the result of new contributions as well as investment gains. Smaller percentage gains for older participants who've been investing for longer periods thus are not surprising. They likely had larger plan balances at the end of 2009 and their continued contributions would result in smaller percentage gains in account balances than contributions by those with smaller balances.
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VanDerhei's update tends to support a 2011 EBRI study. It concluded that people may be able to restore their recession-damaged retirement plans by making relatively small additions to their savings. Even people nearing retirement—those born between 1948 and 1954—need to boost savings by as little as 3 percent to nearly 7 percent a year. The make-up needs for younger groups are much smaller.
The institute stressed that these figures applied only to people who earned enough money to afford to boost their retirement savings. Many people in the lower half of wage earners would have to set aside unrealistic percentages of their pay—more than 25 percent—to even have a chance at funding an adequate retirement. For higher-earning households, the range of the "make up" payments reflects different probabilities of success, plus a person's age, income, and mix of investments during the 2008-09 market downturn.
EBRI looked at "early boomers" (born between 1948 and 1954), "late boomers" (born between 1955 and 1964), and "Generation Xers" (born between 1965 and 1974). In 2010, the percentages of these groups at risk of not having enough money for even a basic retirement was 47.2 percent for early boomers, 43.7 percent for late boomers, and 44.3 percent for Generation Xers. Basic retirement was defined as being able to cover non-discretionary household spending plus uninsured healthcare costs.
There are, the earlier study noted, large ranges in the at-risk numbers depending on income levels, years until retirement, and the probability of having a successful retirement. The overall at-risk percentages are, by definition, averages that lump all preretirees together and assume average savings, average earnings, average life spans, and a 50 percent chance of achieving an adequate retirement.
Looking at the median needs for remaining earners, here are that study's conclusions about the amounts of extra savings (in addition to current retirement savings) that the three age groups would need to set aside each year by age 65 to fund adequate retirements. It also calculated the amounts it said would guarantee retirement adequacy 50 percent, 70 percent, and 90 percent of the time. The ranges within each probability reflect a household's investment mix, with the higher savings additions needed for households that suffered 2008-09 losses from real estate as well as retirement account holdings.
50 percent likelihood: 3.0 to 5.6 percent
70 percent likelihood: 3.8 to 6.5 percent
90 percent likelihood: 4.3 to 6.7 percent
50 percent likelihood: 0.9 to 2.1 percent
70 percent likelihood: 1.1 to 2.0 percent
90 percent likelihood: 1.2 to 2.0 percent
50 percent likelihood: 0.3 to 0.5 percent
70 percent likelihood: 0.3 to 0.6 percent
90 percent likelihood: 0.3 to 0.5 percent