5 Shocking 401(k) Statistics

For many reasons, 401ks are one of the most popular ways for workers to save for retirement. Briefly, some of these reasons are:

• Varied investment choices
• Tax options (traditional 401ks contributions are pre-tax, Roth 401ks contributions are after-tax)
• Easy contributions
• Steady growth
• Adaptable risk
• Higher contribution limits than both traditional IRAs and Roth IRAs

But, despite these benefits, there are some shocking truths about the relationships workers and businesses have with 401k plans.

The 5 most shocking 401k statistics

In a time when inflation, world crisis, and general uncertainty touch our daily lives, planning for retirement might not be top of mind for some. But these 5 statistics show that this is the perfect time to discuss them and reevaluate our current retirement plans, as many are at risk of letting opportunity slip by.

More than 90% of employees are eligible to apply for their employer’s defined contribution plan.

Source: AmericanBenefitsCouncil, 2019

Yes, that’s nearly all workers. And most workers qualifying for defined contribution retirement savings is a very good thing.

Defined contribution plans, such as 401k plans, are one of the easiest ways to save for retirement. This is because contributions are most often taken directly from employee paychecks. Most workers need to opt-in to such an account to take advantage of its benefits.

Because they’re designed to grow over time, many who own a plan can retire with more funds than they contributed. Many employers also offer an employer match program associated with these types of retirement plans. Employer match programs are literally free money. With each contribution an employee makes to the retirement plan, the employer matches a portion of that contribution with their own money.

It’s a tremendous opportunity, and it’s available to nearly everybody who works today. Consider researching whether your employer offers access to a defined contribution plan. See if they offer an employer match program. Opting into these is almost always a smart decision.

The average 401k balance is $103,700, while the median is just $24,500.

Source: Nerdwallet, 2020

First note: always check the median number. It’s often a more accurate representation of where the average person stands.

Everyone has their own retirement needs. Still, $24,500 is a strikingly low median.

How much do you need to retire? Have you created a personal retirement balance sheet? Are you contributing enough to your 401k to meet your goals?

Many companies make it easy to check your retirement account balance. They might offer an app or website you can use to see how much you’ve saved so far. If you feel your balance is low, you can always choose to contribute more. As always, taking advantage of an employer match program can help beef up your 401k savings regardless of how near or far you are from retirement.

74% of small businesses still do not offer a retirement plan for their employees.

Source: Planadviser.com, May 2022

This is staggering.

Turns out, many small business owners believe their business isn’t big enough to afford offering such a plan to employees. But there are always options. In fact, statistics like this are why several states are now beginning to mandate that all businesses offer their employees retirement options.

If you own a small business, some research might help you find 401k options or retirement plans you can afford to offer your employees. In fact, the Department of Labor offers free advice on how a small business can set up 401k options for their workers.

As always, a financial advisor can help you find a plan that suits your budget and business needs.

An estimated 2.8 million 401k accounts are forgotten, left behind, or abandoned each year.

Sourch: Capitalize, 2021

The average account size of these abandoned 401k accounts? $55,400.

It’s somewhat understandable that some workers might inadvertently abandon their 401k accounts. They’re a type of fixed asset: you have to wait decades before your account can be converted to cash. Because a company manages the accounts, they often require little upkeep or interaction from the worker.

So, when workers switch employers, they might not remember they have the account. Or, perhaps they believe the account comes with them when they leave. Maybe they’re unaware how to perform a 401k rollover.

Whatever the reason, it’s important to keep your 401k plan top of mind when switching employers.

If you don’t know how to roll over your 401k, it’s probably easier than you think. Most often, you can contact the company that manages your current account. Depending on the type of rollover you wish to perform, the company might send the money to your new 401k management company.

With another type of rollover, you might receive a check for your full account amount. If you perform it this way, you get 60 days to give that money to your new 401k management company. Missing this 60 day deadline can result in it being considered a distribution. Because your contributions are tax free, you must pay taxes when accepting a distribution, as it’s now considered income.

The Bottom Line

It’s important to remember that 401k plans are not intangible assets. They exist, they have value, and that value grows over time. And, depending on the investment options available to your plan, they can grow a lot.

It might seem like a 401k doesn’t offer much over the short term. But, over the long term, it still offers the potential for massive growth. While $700,000 might be the exception, not the rule, the potential is still there.

A forgotten 401k plan is always a missed opportunity. The more you contribute, the more money gets invested, the more your plan can grow.