If you watch as much CNBC and other financial news media as I do, you know that there are all kinds of metrics that economists and investors use to measure the strength of the economy and to be honest, most people, from the professional investors to the individual investor don’t care about most of them. The academics enjoy analyzing the numbers but they mean next to nothing for your quality of life.
But that’s not the case with one metric. Each year Fidelity releases the average 401(k) balance for all of its 11 million customers. Investors watch this number closely because Fidelity holds more 401(k) accounts than any other investing firm and their report is a direct measure of the health of the average American worker’s retirement account.
The 2012 number will likely come out in May but the 2011 report  showed that the average 401(k) balance was $75,000, up 12% from the 2010 report. This is great news for investors who saw a significant portion of their balance lost in 2008 and 2009.
Even more significant, two thirds of the gains were a result of market gains and only one third came from direct contributions meaning that the market is rewarding us for saving and investing, something that it hasn’t done very well for the few years prior. 10% of customers reported contributing more to their 401(k) while only 3.2% cutting contributions.
The only concerning stat in the report was that 22.1% of plan holders reported borrowing from their 401(k), down only slightly from the all-time high of 22.4% just three months earlier. This proves that American households are still under significant financial pressure only three years after what is now called, “The Great Recession”.
What the report doesn’t tell us is how prepared we are for retirement. The average 401(k) balance may be $75,000 but for somebody close to retirement, that will likely be far less than what they need to replace a significant portion of their working salary unless they have other retirement funds in place. For the thirty something worker, the reported average may represent a healthy balance in the early stages of their career.
As we look ahead to the 2012 Fidelity report, what is it likely to show? Since the report highlights balances through March 31st of the current year, it’s likely to show another year of impressive gains. Although the stock market ended 2011 almost exactly flat, the first quarter of 2012 was the best since 1998 with a gain of more than 5.4%.
Many factors affect a person’s retirement balance but as we’ve seen over the past half-decade, when the overall market does well, our 401(k), regardless of the funds we choose, tends to do the same.
Don’t let reports or market conditions affect your contribution schedule. Contributing an amount equal to the maximum your company will match and leaving it invested is still the best way to see the most growth out of your 401(k) regardless of what the stock market does.
Find a fee only financial adviser that you trust and have them review your funds annually. Many will do this as an a la carte service. Once you know that you have the right funds, leave it alone and consider contributing to an IRA. Financial professionals throw around a lot of different figures but it may take a 13% or more yearly contribution to your retirement accounts to be ready to retire comfortably. That, of course, depends on a lot of variables and that’s where the trusted financial adviser can help.