Tips on helping retirement nest egg grow
Fidelity suggests that retirement savers should accumulate about 1 times their salary by age 35, 3 times by 45, 5 times by 55 and 8 times by the time they retire at age 67. Credit: iStock.com
According to Fidelity Investments, the nation's largest 401(k) administrator, the average account balance increased by 12 percent in 2012 to $77,300, the highest recorded since 2000. That was a dramatic turnaround from the recent low level of $46,200 in the first quarter of 2009.
Still, when adjusted for inflation, the fund company acknowledges that 401(k) balances were higher during the first half of 2000 than they are now -- ouch! While we can't erase the past, let's dive into these numbers a little more.
Here's the average year-end 401(k) balance by age group for those closer to retirement:
Not bad, but considering Fidelity's own rule of thumb for calculating retirement needs, these numbers demonstrate that there is a long road ahead for some workers to achieve adequate retirement funding. Fidelity suggests that retirement savers should accumulate about 1 times their salary by age 35, 3 times by 45, 5 times by 55 and 8 times by the time they retire at age 67.
The disconnect between the average 401(k) balances and the retirement targets may be attributable to some of the assumptions that Fidelity makes. The big one is that employees will begin working at age 25, and that they will work and save continuously until they reach 67. The Great Recession blew a hole through that one, with millions experiencing joblessness, reducing their retirement contributions and/or dipping into their retirement savings.
Fidelity also presumes that employees will make continuous annual salary contributions to a workplace plan beginning at 6 percent and escalating 1 percent per year until reaching 12 percent, and that they will receive an ongoing 3 percent annual employer match throughout their careers. (Among Fidelity plans, 82 percent of employees receive some sort of match.)
Those contribution goals have been elusive for some as they prepare for retirement, but the best news of the Fidelity report shows that many are back on track; 401(k) contribution rates averaged 11.4 percent for workers ages 65-69 (14.9 percent with match); 10.6 percent for those ages 60-64 (14.2 percent with match); 10 percent for those ages 55-59 (13.6 percent with match); and 9.2 percent for those aged 50-54 (12.7 percent with match).
Those are decent contribution rates, which should help restore the foundation of most retirement plan participants.
Here are a few more tips to help rebuild your nest egg:
