Members of 401(k) plans nationwide are feeling richer. The
average account balance in plans run by Fidelity Investments hit
$77,300 in the fourth quarter.
That was an all-time high since Fidelity -- the largest
operator of 401(k)s -- began to track this data in 2007.
Workers ages 60 to 64 averaged $134,600. Studies of other
plans industrywide show similar trends.
Still, even that balance for older workers would not be enough
by itself to pay for many years of retirement. Using a common
strategy of withdrawing 4% of your balance each year in
retirement, your initial payout would be just $5,384.
So how can you boost your balance by retirement? Here are four
steps that can be used in one form or another at any point of
your work career.
Time is one of your most powerful tools, says Brooks Herman, head
of research at BrightScope, a financial information and research
Imagine that starting at age 25 you're earning $60,000 and you
kick in $500 a month to your account, which you invest in
moderate growth funds.
Factoring in pay raises and bigger annual contributions, based
on historic rates of return, an online eTrade calculator says you
have a 70% chance of amassing a $679,000 portfolio by age 65.
If you start just two years earlier, odds are your nest egg
would end up more than $68,000 bigger.
Too old to start early? Delaying retirement has a similar
Contribute as much as possible.
That not only puts more of your own money to work. It also helps
you grab potentially free money.
"You should aim for the maximum company matching
contribution," said Merrill Lynch's Debbie Howard, managing
director of global corporate and institutional advisory
Otherwise, you're giving up what is basically a free pay
raise, says Jim Wallace, another managing director.
Consider using a Roth 401(k) account.
Contributions are not deducted from your taxable income. But
earnings grow tax-free. And eligible withdrawals are also
tax-free. Withdrawals from a regular 401(k) are taxed as ordinary
You end up with more aftertax take-home pay with a Roth if
your tax bracket stays the same or rises in retirement, says
Scott Cole, senior manager of Deloitte Consulting.
You can use a Roth only if the format is offered by your
Beware of high fees.
Fees are one factor to consider in choosing among investment
choices in your plan's menu.
"It can make a big difference between mutual funds that are
otherwise very similar," said Simon Roy, president of Jemstep, an
online investment adviser.
Suppose you have a $100,000 balance by age 40. You earn
$80,000, contribute $8,000 a year and get a 6% average annual
If you invest in low-cost funds -- perhaps some index funds --
your annual fees could average 0.1%. But imagine that your
neighbor, whose situation is identical to yours, invests in an
actively managed fund that also returns 6% yearly. The average
large-cap fund's fee is 1.31%.
By age 50 your balance would be $289,000, Roy says. Your
neighbor's would be $262,000. By age 60 your balance would be
$623,000, more than $100,000 bigger than your neighbor's.
Actively managed or passive is not the point. "High fees are
the point," Roy said. "Avoid them if you can."