Posted: June 25, 2020

How Does Your 401k Balance Compare to the Average? Is it Enough?

Blue Rock RiversEdge

The effects of COVID-19 seem to have no bounds, but this time we are here to discuss how the virus has pushed 401k balances down and what they look like today.

A reality that more and more Americans are coming to accept is that Social Security benefits are far from substantial enough to support retirees on their own. Generally, benefits only replace about 40% of your former paycheck, at best. Even an American of modest means will need twice or three times that number to cover their daily living expenses.

Another standard source for generating retirement income is an employer-sponsored retirement plan such as a 401k, 403b, or 457b. These are popular not only because of the employer match, but because they have higher contribution limits than IRAs and allow individuals to save for retirement on a post-tax, or tax-deferred, basis. Ultimately, this translates into more money for you, the saver.

But, even if you are saving the maximum in your employer-sponsored plan, you may be curious to see how your savings stacks up against the average and if your current savings rate will be enough to serve you in retirement.

Retirement balances take a hit

Ready for the ball drop?

Retirement plan account values are down significantly from the final quarter of 2019. In Q4 2019, the average 401k balance was $112,300. As of Q1 2020, the average 401k balance is   $91, 400, according to reports provided by Fidelity. This means that the average investor retirement plan value diminished by about $20,900 or 19% in just 3 short months!

“Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline,” Kevin Barry, president of workplace investing at Fidelity, said in a statement.

Fidelity did report that while Americans are continuing to save, they have moved to safer allocations. In fact, one positive trend to note is that stocks have rebounded rather quickly already. Of course, the economic stimulus and escalated unemployment benefits may be what has held consumer confidence together, but it has done the trick to keep things moving in a positive direction. If the economy continues to re-open and the crisis slows (fingers crossed), a recovery may not be far off.

Are you saving enough?

Simply put, this question can only be answered in light of your age and retirement timeline. If you are in your 40s, 50s, and up, $91K might not have the time to grow into a sizeable nest egg before retirement. For those savers in their 20s and 30s who still plan to work for the next 3-4 decades, this could be a good start. Working in conjunction with a financial advisor can help you decide how you will generate enough income to live off in retirement and how best to plan for that now.

The current financial crisis has changed the financial reality of many Americans. However, if you have not suffered a loss of income and have enough funds in your emergency savings to cover your income from at least 3-6 months, you may want to consider increasing your contributions. Currently, you can contribute up to $19,500 to a 401k if you’re under 50 and $26,000 if you are over 50.

Even if the impacts of COVID-19 have rattled your 401k balance, it isn’t too late to get your savings on track to live a comfortable and rewarding retirement. If you are unsure if your savings rate is high enough, or if your combined resources will generate the income you need to live off once you leave the workforce, we encourage you to schedule a complimentary Discovery Call with one of our advisors today.

Are you a business owner?

If you are a business owner and would like to review your company plan and benefits in the wake of this financial crisis, check out our dedicated RiversEdge 401k division. We focus on helping companies design, implement, and monitor retirement plans. Our time-tested and client-approved independence and knowledge have enabled us to grow into one of the region’s leading providers of retirement plan advice. Schedule a call to learn more here.

Comments are closed here.