Has your 401k balance hit a record high?

If you’re saving into a 401k plan, the chances are that your plan is worth more today than ever before. New research from the US’ largest provider of 401(k) plans has found that 401(k) balances reached record highs in 2012, thanks to a strong stock market and increased contributions from savers.

CNN reports that Fidelity Investment’s average 401(k) balance hit $77,300 at the end of 2012. This represents an almost 12 per cent increase from $69,100 in 2011, said the report from the company which looks after 12 million U.S. workers.

Keep reading to learn more about why your 401k balance is increasing

Rising stock markets and contributions led to higher retirement savings

“It is very encouraging to see that the retirement balances have completely bounced back from where they were during the height of the downturn and that participants have continued to have faith in the 401(k),” said Jeanne Thompson, Fidelity’s vice president for retirement insights.

Fidelity said that about two thirds of the gains could be attributed to rising stock markets. CNN reports that in 2012, all three major U.S. stock market indexes gained between 7 per cent and 16 per cent. The remaining third came from plan holders increasing their 401k contributions. Thompson added that with traditional pensions becoming obsolete, especially for younger workers, the 401(k) continues to grow in importance. “For many people, the 401(k) is their primary retirement savings vehicle,” she said.

401(k)s in numbers

$77,300 – average 401(k) balance

2000 – the year that the average 401k balance was as high as it is now

12% – the increase in the average value of a 401(k) plan between 2011 and 2012

$5,890 – the average amount saved to a 401k plan in 2012

94% – the proportion of 401(k) participants that have a higher account balance then they had prior to the 2007 stock market plunge

82% – the number of employees receiving some sort of employer matched contributions

$3,430 – the average employer contribution to a 401k plan


401k balances increasing ‘across the board’

One of the main reasons why 401k balances are rising is that millions of savers are contributing more to their plan, says Jack VanDerhei, research director at the non profit Employee Benefit Research Institute. According to analysis of his 24 million 401k participants, 94 per cent of savers had a higher 401k balance than they did in 2007.

Employee contribution rates have risen in recent years, partly thanks to automatic enrollment and escalation programs made popular by the Pension Protection Act of 2006, VanDerhei said. This programme means that many workers are automatically enrolled into a 401k plan and a set amount is deducted from every paycheck. The contribution amount automatically increases each year, unless the plan holder chooses to opt out.

“Thus far, very few people who have been put in it have opted out,” VanDerhei said.

Has your 401k balance increased in the last year? What are you doing to maximise your contributions? Please share your thoughts and advice below.

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