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Pedestrians pass by a Fidelity branch in the Loop on Thursday. The company announced that the average balance of its 401(k) accounts rose 12 percent in 2012.

401(k) balances rise in 2012, but consumers remain wary of ability to save for retirement

by Anthony Valentino
Feb 14, 2013

The personal finance world celebrated Valentine’s Day with a dose of good news, as 401(k) account balances shared the love with investors, rising 12 percent in 2012 to all-time highs, according to a report released Thursday by Fidelity Investments.

The report is a bit of welcome relief for besieged American investors, many of whom have a persistently pessimistic outlook about retiring comfortably. Sixty percent of workers reported that the total value of their investments and savings, excluding the value of their home, was less than $25,000, according to an Employee Benefit Research Institute survey.

The average 401(k) balance surged to $77,300 in 2012, up from $69,100 at the prior year’s end, according to Fidelity’s analysis. This caps a remarkable turnaround in asset growth thanks to stock market gains. During the height of the recession, equity investments stomached huge losses. As a result, the average balance of Fidelity’s 401(k) accounts was just $46,200 at the end of 2008.

On average, customers contributed an average of 8 percent of their annual salary to their 401(k) plan last year. With the average employer match or profit-sharing program factored in, the total contribution swelled to 12 percent.

“It’s encouraging to see how continued savings combined with a healthy equity market have led to another record-high balance for 401(k) savers,” said James MacDonald, president of workplace investing at Fidelity Investments.

Strong market performance in 2012 was largely responsible for the boost in retirement balances. The Standard & Poor's 500 stock index similarly posted double-digit growth last year and the general U.S bond index rose 4 percent.

But financial planner Jeff Kostis of Vernon Hills-based JK Financial Planning Inc. notes that the gains, although robust, could be higher.

Assuming an investment strategy of 75 percent equities and 25 percent bonds lands you right around the 12 percent 401(k) yield Fidelity noted, and that is without any additional employer contributions, said Kostis.

“It tells me it’s good, but people are not choosing funds wisely. And they are not investing nearly enough for their own futures,” he said. “With as strong as the market performance was from the equity standpoint and the fact that people are still adding money and employment and auto-enrollments are up, I would expect that the average balances would have gone up even more.”

Thursday’s report only chronicles accounts held at Fidelity. The company is America’s largest provider of 401(k) accounts, encompassing the retirement savings of roughly 12 million workers spread across more than 20,000 companies.

Despite the somewhat positive news, consumers remain cautious regarding retirement savings.

Tommy Powers of Chicago, an employee at information management giant EMC, notes that he prefers the company’s stock purchase program as a vehicle for long-term investing rather than a 401(k).

“Personally I’d rather see my money go towards something like that,” he said. “Yes, I am making my money vulnerable to where net income and EPS are, but I feel more comfortable with the employee stock purchase program.”

Brian Fisher, a 25-year-old student and part-time healthcare consultant, said that he hopes contributions to his 401(k) will be much greater when he is working full-time, although he is concerned as to how student loans will affect his capacity to save.

“The one thing that will keep me from saving is student loans. Ideally I’d like to save 25 percent of my income,” he said. “That’s kind of the best case scenario. How I will be able to do that, I don’t know.”

John Apuzzo, an employee at Pitney Bowes Inc. echoed Fisher’s sentiment. Apuzzo said he is comfortable with his current savings, but recognizes that it is difficult to pinpoint a specific fiscal target due to oscillations in inflation and equity indexes.

“As always, it’s great to have saved up X amount of money, but do I know how much that is going to be worth 10 years from now with high inflation,” he said. “When you are going against food prices that are rising, you have to save some significant money for that.”