Hardly a “Lost Decade”: Pre-Retirees Double 401(k) Balances

Pre-retirees who continuously held a 401(k) plan with Fidelity Investments for the past 10 years more than doubled their account balances, according to data released by the Boston fund company on Thursday.

The average account balance for these pre-retirees, aged 55 years or older, rose to $211,300 by the end of the third quarter from $96,000 ten years ago. Pre-retirees with a contribution rate at or above 8% this year showed average balances increasing more than 130% over the past 10 years to $291,700.

“The past decade was certainly not a lost decade for participants who remained committed to saving even through all of the market’s ups and downs,” said James M. MacDonald, president,  of Fidelity’s Workplace Investing group. “A disciplined, systematic savings approach in a diversified portfolio has been the key to building a sizable nest egg for many pre-retirees during one of the most volatile decades in history.”

The same group of pre-retirees had a 10-year, average cumulative time-weighted personal rate of return of 18.3% while the S&P 500 declined 4.2%.

In the third quarter, participants deferred on average 8.2% of earnings to their 401(k) plan. More participants increased their deferral rates (4.2%) than decreased (3.1%.) This marked the sixth consecutive quarter of positive savings.

Fewer participants allocated all of their assets to equities at the end of the third quarter (13.1%) as compared to the same period a year ago (14.5%).

Average 401(k) account balances increasing 9.4% to $67,600 from the previous quarter.

At the end of the third quarter, the average equity allocation for all participants was 65.4%, down 13 percentage points from the end of the third quarter of 2000. Over the past five years, their average portion of total equity contribution allocations reduced to 57.6% at the end of the third quarter, from 63.6% at the end of the third quarter 2005.

Despite this data, ING reported last week that most Americans don't put as much into their employer-sponsored retirement plans as they can.

According to the ING survey, 87% of workers said they could save more in their employer-sponsored retirement plan. Sixty-four percent said their workplace retirement accounts make up all or most of their retirement savings. And 44% admitted that if they didn't have a retirement plan at work, they probably wouldn't be saving for retirement at all.