If your 401(k) balance resembles that of the average worker, congratulations! But find out why you also need to do much more.
If your 401(k) balance resembles that of the average worker, give yourself a pat on the back. Then continue building your retirement savings.
According to the latest numbers from Fidelity Investments — which administers investment accounts worth $5.7 trillion — 401(k) balances ended 2016 at a record high.
Kevin Barry, Fidelity’s president of workplace investments, notes “this shows people are taking the right steps towards reaching their retirement savings goals.” However, it also shows they could be doing more.
Let’s start with the good news, though. According Fidelity’s numbers for the fourth quarter of 2016, which the firm released Thursday:
- The average 401(k) balance reached an all-time high of $92,500, which reflects an increase of $4,300 from one year earlier.
- The total amount saved in 401(k) accounts over the past year, including both employees’ contributions and employers’ matches, reached a record high of $10,200.
- The average 401(k) contribution rate reached 8.4 percent, the highest it’s been since 2008.
- The percentage of 401(k) account holders with outstanding 401(k) loans fell to 21 percent, the lowest it’s been since 2009.
Now for the bad news. First off, workers could be socking away a lot more.
As we recently reported, for both 2016 and 2017, employees can contribute up to $18,000 per year to a 401(k) if they are under 50. The limit jumps to $24,000 for people 50 or older.
If you’re unable to contribute the maximum, make sure you’re at least contributing as much as necessary to get the full match from your employer. Otherwise, you’re leaving free money on the table. Money Talks News founder Stacy Johnson explains why you should try to contribute mightily and regularly to your 401(k) plan:
First, always contribute as much to your qualified retirement as you can, because every dollar in taxes you save by doing so is like getting an interest-free loan. Second, always, always, always contribute enough to get the maximum amount of free money your employer is offering.
To learn more, be sure to check out “Ask Stacy: How Much Should I Contribute to My 401(k)?”
Should you borrow against your 401(k)?
While fewer employees are borrowing against their retirement funds, 21 percent still do so, based on Fidelity’s figures. That means 1 in 5 folks with a 401(k) are borrowing from it.
Whether that’s OK depends on your situation. As Stacy explains:
“Whenever someone asks me about borrowing more to deal with debt, the first question I have is, ‘Why are you in debt in the first place?’ If you have debt because you’re regularly spending more than you’re making, all you’re doing is kicking the can down the road. …
If, however, the debt you’re dealing with arose because of a temporary and now resolved situation, such as an illness or job loss, great. The less interest you pay, the sooner you’ll recover.”
To learn more, check out:
- “Is Getting a 401(k) Loan a Good Idea?“
- “Ask Stacy: Should I Borrow From My Retirement Account to Pay Debts?“
How are you preparing for retirement? Let us know below or on Facebook.