401(k) Contributions Hit 10-Year High

Wednesday, February 23rd, 2011

According to CNN Money, the average 401(k) savings hit a 10-year high at the end of 2010 to nearly $72,000, an increase of nearly 12 percent from a year earlier. The popularity of 401(k) plans is largely due to the fact that they are suspended from taxation and frequently include a matched contribution from the employer. As a result, in the United States 401(k) plans have been the principal method for saving retirement funds largely replacing the retirement pension system.

In fact, over 51 million Americans contribute to 401(k) plans that stow away roughly 8 percent of their net salary, according to Fidelity Investments. Perhaps on the winds of the economic recovery, participants in 401(k) plans have steadily increased contributions for the seventh straight quarter. These findings are significant because it shows a broader trend in terms of what has become the standard retirement savings plan.

According to Bloomberg, the analysts attribute the rise in contribution levels to market performance. Particularly emphasized in this article was the influence of the Standard & Poor’s 500 Index gaining almost 13 percent in 2010. This is an interesting finding, because it shows that despite the S&P initially losing 38 percent in 2008, workers continued to contribute. The president of the Chicago-based Profit Sharing/401K Council of America says that this is a very good indication that 401(k) programs have become a permanent fixture of the financial world.

It seems that the trend among workers was to limit the amount of funds they withdrew from their 401(k) during the financial crisis, because they understood the end result might impact their ability to retire in the future according to Beth McHugh, the vice president of market insights at Fidelity Investments.

McHugh went on to say that nearly 80 percent of workers did not draw a loan from their 401(k) plans in 2010.








Article by Andrew Timm

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com

Tags: 401(k) , retirement , s&p 500

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