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Why retirement plan participation statitistics don't *really* matter

There was some hubbub recently in the world of retirement planning when Fidelity released some statistics from its 401(k) provider practice. Have you ever wondered how your employer retirement plan account balance compares with other people’s? Read on to see some of the Fidelity statistics, and read further to see why they don’t really matter.

Fidelity Investments released a report stating that the average 401(k) balance among plans they record-keep attained a 10-year high at the end of 2010.

The average 401(k) account balance rose to $71,500 at the end of 2010, reaching a 10-year high since Fidelity began tracking the data based on the industry’s largest participant base of 11 million 401(k) accounts. For participants who were continuously active for the past 10 years1, their average balance increased to $183,100 at the end of last year from $59,100 at the end of the fourth quarter 2000.

1 10-year continuous participants were both actively employed by plan sponsor and had a balance for full 10 years. Account balance growth is attributed to both contributions and market activity.

The financial industry greeted this news with varied commentary:  ‘we’re taking great steps in the right direction’ or ‘this is one baby step, and we need to take a lot more steps to be in a good place.’

Why the Fidelity information doesn’t really matter …

It’s difficult to make a judgment about this data because we don’t know the average age or desired retirement age of participants. Information like this only provides a generic snapshot of retirement plans. Tracking this data is helpful for economists and financial industry experts, but it’s not particularly helpful to you.

Each individual is unique. What you can do is take actions to maximize your own retirement savings efforts.

Rather than wondering whether you’ve saved as much as the person in the next cubicle over, you should be wondering whether you’ve saved enough for your personal situation. Several variables will affect your retirement savings goals. Among them:

  • How long do you plan to work? As long as you’re working, you’re receiving income and (hopefully) contributing to your retirement account(s).
  • What kind of retirement do you envision? If you only want to maintain – or even decrease – your standard-of-living, you’ll need less money. If you plan to travel more, buy more and/or start new hobbies, you’ll need a greater monthly income stream.
  • How old are you now? I’m in my 30s and will need far more money to retire than my parents will; inflation is one factor, and health care costs that are outpacing inflation are another factor.
  • Do you own your home?  If so, will your mortgage be paid-off by retirement? Is your home likely to need repairs and maintenance? Housing costs will be ongoing regardless of your age or retirement status, but a paid-off mortgage on a well-built home could mean fewer expenses.
  • Do you have long-term care insurance? With longer lifespans, more and more Americans can expect to need pricey long-term care in retirement
  • What other investments or income streams do you anticipate using, in addition to your employer retirement plan?

To calculate where you stand, after considering your individual situation, try one of our calculators:

  • Current Savings Calculator: Helps determine whether your current savings are enough and makes recommendations for additional savings if needed
  • Retirement Income Calculator: Helps determine how long your retirement savings could last, given your anticipated monthly income stream

So when you read about data like the Fidelity release, don’t sweat the details. Let it serve as a reminder to check back in with your retirement strategy. Decide whether you need to make changes to your savings level, your investment choices or your retirement expectations.

Carolyn Humpherson, Financial Communication Specialist

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About Smart401k

Smart401k is a web-based investment advisory service providing unbiased recommendations to help people invest in employer-sponsored retirement plans. Smart401k provides service to nearly 11,000 clients who collectively have more than $2 billion in assets. Plan participants receive personalized, fund-specific investment recommendations and the support of professional investment advisers available to discuss all investment questions. Based in Overland Park, KS, Smart401k is online at Smart401k.com.