By now you’ve probably seen the reports showing Americans’ 401(k) account balances won’t support a decent lifestyle in retirement. Well, Fidelity is saying those studies are using bad math.
Fidelity agrees with the other studies in one regard: If you just look at the average 401(k) balance of Americans, you get a number that’s too small to cover retirement expenses.
But, as Fidelity told U.S. News & World Report, you can’t just look at the average 401(k) balance.
Reason: The overall average lumps together everyone — from those in their early 20s, who just started a 401(k), have little saved, and are nowhere near retirement, to those in their mid 60s who have been saving their entire lives.
The younger employees, who haven’t had time to put away much cash, are dragging the number down — as are older workers who pull their large next eggs out of their employer’s 401(k) at retirement and invest it elsewhere.
Fidelity, instead, says to get an accurate picture of Americans’ savings habits you’ve got to look at what the same individuals are doing over time.
- At the end of March 2002, Fidelity says the average balance of plan participants ages 30 to 34 was only $4,600. But 10 years later in 2012 the account balances for those same individuals rose to $78,300.
- For individuals age 55 to 59, their account balances averaged $77,700 in 2002 and increased to $245,000 by 2012.
That paints a much more positive picture of individuals’ savings behaviors than simply averaging all 401(k) participants’ account balances together.