At least through one measure, there was a ray of hope in 2020 for people who can save in company pension plans like 401 (k) s.
According to Vanguard’s annual How America Saves report, released Thursday, they watched their account balances grow 21% on average for the year, in large part due to price gains.
Most people don’t make trades or even change the mix of investments in these types of accounts. Many use funds that plan for a targeted retirement year and automatically change the investment mix over time.
But not everyone left their plan on autopilot. About 10% of savers switched between different fund options in 2020, up from 7% in 2019. The report did not specify which group of people achieved better returns.
The pandemic emergency laws have made it easier for some people Withdraw up to $ 100,000 with no penalty from their accounts last year. Some feared that this would wipe out retirement plans for those who took advantage of the relaxed access. Vanguard found that about 5.7% of those whose plans enabled the Covid emergency withdrawals benefited, withdrawing an average of about 40% of their balance.
The overall good news in Vanguard’s report overshadows the fact that lower-income people may not necessarily be able to afford to put money aside on plans like 401 (k) s. Of those who have access to a company retirement plan and earn less than $ 15,000, 37% participated in the plan in 2020.
Participation rates rise with income, and nearly all people who earn $ 150,000 or more put money in their company retirement accounts. Wholesalers and retailers had the lowest participation rate at 61% and those in the finance, insurance and real estate sectors had the highest at 90%.
Here’s who is enrolled in the workplace retirement plans by income
Source: Vanguard 2021
Other highlights from the report:
- Approximately 76% of the average account was held in stocks of the 4.7 million plan participants for which Vanguard is keeping records.
- The average account balance increased from $ 106,478 in 2019 to $ 129,157. The median balance, more representative of the typical plan participant, was $ 33,472, down from $ 25,775 in 2019. This large gap between the average and median balance is due to “a small number” of very large accounts that raised the average well above the median The report reads, which found that 30% of attendees had credit under $ 10,000 in 2020, while another 30% had credit over $ 100,000.
- Men “have average and median balances that are nearly 50% higher than women,” the report said. Another difference between the sexes was behavior: women acted around 40% less often than their male colleagues.
- The average income of people participating in Vanguard plans was an estimated $ 73,000, compared to an average income of $ 34,000 for employees not participating in their company’s plan.
- In 2020, people spent an average of 7.2% of their salary on savings, a slight increase from the 6.9% average a decade ago. Approximately 22% of attendees are contributing more than 10% of salary and 12% hit the 2020 maximum contribution amount of $ 19,500. When combining individual and company contributions to the plans, the total contribution rate from participants was an estimated average of 11.1%.
Before it’s here, it’s at the Bloomberg Terminal.