One of the headline grabbing stories making the rounds today was that the average 401(k) balance, as reported by Fidelity, rose by 12% to an all time high of $77,300 in 2012 from $69,000 the year before. Considering that Bernanke, as well as the entire developed world, have now made it clear they will not stop pumping money into the market until they generate enough inflation that the world's $30+ trillion in excess debt (as calculated by BCG [6]) can be safely inflated away, one wonders just how many months of living expenses said cash would fund, but one thing is certain: the assumption that one's entire retirement can be prefunded with some $77K is disturbing. The obligatory spin: this nubmer was a laughable $48,900 in 2008, so at least there is improvement. Green shoots perhaps?
There are nuances to the data: for workers aged 55 and over, the average 401(k) balance is $143,300, while those workers 55 and over who have been lucky to continuously contributed their 401(k) for at least 10 years have an average balance of some $243,800. Too bad the people who fall into the latter category are a handful of the entire universe. The other question, of course, is what do the tens of millions who do not have a 401(k) plan to do when they retire: the Fidelity study only accounted for some 12 million plan participants who have an account with the pension giant.
Furthermore, while it is commendable that Bernanke has generated a wealth effect of some 12% for those few who are planning for retirement, another problem is where the funding for this increase has come from. As Bloomberg explains [7], while two thirds of the increase came courtesy of the stock market, or some 8% in absolute terms, the rest was from funded (and matched) contributions to accounts. This is equal to $2733 in actual money set aside for retirement in 2012, a far cry from the maximum allowed $17,500 per year, with the actual cash outflow excluding the corporate match substantially less. This amount to a measly $228 per month (less net of matching) that the average American who has a 401(k), has set aside for retirement. We understand now why Bernanke is so hell bent on hitting that Dow 36,000 bogey - without it, the average retired American will wake up very soon one day and realize that the money is gone. All gone.
Some additional details [8]on the breakdown:
Among older workers, 401(k) contribution rates averaged 11.4% for workers aged 65 to 69, 10.6% for those aged 60 to 64, and 10% for those aged 55 to 59. If you add in their employer match, the average savings rate for each of those groups was: 14.9%, 14.2% and 13.6%, respectively, according to Fidelity.
Workers aged 35 to 39 saved 7.2% on average (10.4% with the employer match). Those aged 40 to 44 saved 7.6% (10.9% with the match). Those aged 45 to 49 saved 8% on average (11.4% with the match). Those aged 50 to 54 saved 9.2% on average (12.7% with match).
Which means that once again it is the younger workers who are in for a very rude awakening:
Contribution rates are substantially lower among younger savers. Workers aged 20 to 24 saved 5.4% of their salary on average, those aged 25 to 29 saved 5.9%, and those aged 30 to 34 saved 6.5%. With the employer match included, those figures jump to 8.1%, 9.1% and 9.7%.
There is of course alternative, and it is well-known to those who have been following our series on the increasing gerontocracy of the American work force:
For a growing portion of people, their retirement plan is to work longer. A separate study found that 62% of workers aged 45 to 60 plan to delay retirement. That’s up from 42% in 2010, according to a survey of 15,000 people by the Conference Board, a nonprofit business-research organization
But.... but... the media spin is that the labor force is imploding because of all the millions of baby boomers who can't wait to retire. Does not compute. Must be seasonally adjusted or something.
As for the conclusion:
“You get some people who are more predisposed to saving,” said Beth McHugh, vice president of market insights at Fidelity. “Those are the individuals that we repeatedly see they will take advantage of any and all opportunities for saving.”
Considering the soaring amount of emergency 401(k) withdrawals in the past few years, the word "saving" can soon be scrapped from the US lexicon. But at least it clears up any confusion over the dreaded possibility that the Fed may, one day, begin unwinding its balance sheet which will be $4 trillion by the end of 2013, and then increase by $1 trillion every year until, well, it can't increase any more.