(Photo by Peter Dazeley/Getty Images)
Look, I’m not big fanboy when it comes to 401(k)s. They are not a guaranteed pension plan. Employers don’t have to fund them and may charge high fees. And you don’t have to contribute. Half of employers — most of them small companies — don’t even offer one.
Since most employers offer 401(k)s as their only retirement savings option, that’s why millions of Americans will come up short for retirement. Those that have contributed, though, have done fairly well.
Despite COVID, economic disruption, inflation, skittish markets and strong employment, “the good news for working households nearing retirement with a 401(k), median combined 401(k)/IRA balances rose from $144,000 to $204,000,” reports the Center for Retirement Research at Boston College, surveying federal data from 2019-2022.
A large number of working Americans, however, are not faring well on the retirement savings front, according to the CRRC:
- The balances of households ages 45-54 failed to keep pace with inflation and those of households 35-44 declined in nominal terms.
- On balance, given the strength of the economy and the gains in the stock market over the three-year period, the 2022 data provides a disappointing picture of the retirement assets for working households.
- Moreover, the focus is on the 50% of households with a 401(k) plan; the other half of households have nothing but Social Security. The bad news is that only half of older households had a 401(k) plan, and the gains occurred among higher-income households, while the situation for the bottom 40% of the income distribution deteriorated.
What You Can Do Now
- Boost your contribution with each raise. If you get a salary bump, save more. You can also set this up automatically.
- Sign up for automatic contributions. You can’t spend what you can’t touch. Set a high contribution rate and invest the money in a diversified mix of stocks, bonds and cash.
- Always take your employer’s contribution match. This is free money. They match your contribution; it’s 100% return.
- If your employer doesn’t provide guidance on how to safely invest, seek independent advice. If they don’t provide a plan, you can set up your own, but don’t do it through a broker, insurance agent or commissioned “financial advisor.” You may have to hire a fee-only fiduciary certified financial planner. Many DIY retirement plans are offered by mutual fund companies offering the lowest-cost index funds.
