Late last year, Fidelity Investments - the nation's largest 401(k) provider - announced that its average 401(k) balance had hit $75,900 at the end of the third quarter, the highest in the more than a dozen years the company has been tracking the data. The analysis of 12 million accounts among more than 20,000 corporate defined contribution clients showed a 4.2% bump from the end of 2012's second quarter and an 18% rise over a year.

The good news doesn't stop there: Annual employee 401(k) contributions grew 7.3% in the past five years, and company matches are up 19% since the third quarter of 2007, Fidelity reports.

"It's encouraging to see companies making a greater contribution to their employees' 401(k) plans, as we know a healthy employer match not only impacts employees' retirement savings but also has a positive impact on their behavior, ultimately leading to better outcomes," says James M. MacDonald, president of workplace investing at Fidelity. "And employers could do even more to help boost savings, such as increasing their default automatic enrollment rate and utilizing automatic annual increase programs that gradually raise an employee's savings rate."

 

'A precarious position'

However, separate data from the Pew Research Center and the Employee Benefit Research Institute dumped a big bucket of ice water on the Fidelity stats - Americans' confidence in retirement investing and security is at an all-time low.

Writing for Pew Social & Demographic Trends, Rich Morin and Richard Fry say that in a national survey, nearly four in 10 adults currently are "not too" or "not at all" confident about having sufficient income and assets for retirement. In early 2009 - near the peak of the Great Recession - only 25% of respondents felt that way.

Of those between the ages of 36 and 40, 53% told Pew Research they are "not too" or "not at all" secure about retirement savings. About one-third of those aged 60-64, and about a quarter (26%) of people 18-22, fall into those categories.

In addition, Morin and Fry note in the report, Gallup surveys from a longer time frame suggest retirement concerns have grown steadily over the past decade, with confidence declines beginning well before the housing market fallout or financial system turmoil.

"According to Gallup," the pair writes, "the percentage of adults who fear they will not have enough money to live 'comfortably' in retirement has grown from 32% in 2002 to 66% last year. During that same period, the share who worry that they do not have enough money to retire increased by 12 percentage points, from 54% to 66%."

EBRI's 2012 Retirement Confidence Survey has the percentage of those very confident about having enough money to live comfortably throughout their retirement years at 14%, a valley masquerading as a plateau that has held relatively stable since 2009, marking a low point in the 20 years EBRI has been conducting the RCS.

The worst part, says Jack VanDerhei, EBRI research director and co-author of the RCS report, is that those lacking confidence aren't wrong.

"Basically, the reason the confidence rate is stagnant is you had a huge group of people - for many, many years - that had a tremendous amount of false optimism," VanDerhei says. "And given what happened in 2008 and 2009 with the financial markets and real estate markets, a large percentage of these people for the first time figured out what a precarious position they were in.

"So, the fact is now you have a number of individuals who realize how bad their relative position is. Even though overall, in aggregate, employer and employee contributions might be going up, it doesn't necessarily include these individuals who had no right to ever have any confidence in their own specific situation, but now ... when they are asked their confidence, it reflects something closer to reality."

Still, the wishful thinking hasn't entirely disappeared: Many workers report having no or virtually no savings or investments, EBRI finds. Even more surprising, a majority (56%) of wage earners and/or their spouses expect to receive benefits from a defined benefit plan in retirement, despite only one-third reporting that they or their spouse currently has such a benefit from a current or previous employer.

"They still somehow imagine, magically, that they're going to have the defined benefit before they retire," he says. "There's no empirical evidence to base that on ... It's clear that retirement wealth - other than Social Security, going forward - is going to have to be defined contribution plans."

 

Acting with urgency

In terms of conveying that financial security is largely the responsibility of the plan participant, Jeanne Thompson, vice president of market insights for Fidelity, thinks "some people hear that message and get it better than others," and that older workers feel the heat, but the urgency of their actions could be what's making them think they're doing better.

"With the aging population, as people head into retirement, we do see that older workers contribute at a higher rate," Thompson says. "They may no longer have pension plans, they've only been part of a DC plan for 20 years or so or maybe less, and I think they're starting to realize the responsibility is theirs, and that there are more pieces to the pie than just the DC plan.

"We do see, though, that within the DC plan they are committed to it. In terms of confidence, I think many, as they realize it's their responsibility, are starting to seek the guidance, and we've done surveys where participants that have guidance are more confident and comfortable in their decisions than those that haven't."

EBRI's results align with Thompson's assessment, as the RCS shows that individuals who have calculated their retirement needs are markedly more likely to be confident about their plans, even though they typically name higher goals.

VanDerhei suspects "that there's a high correlation between people who actually go through the necessary steps and the amount of assets they've already accumulated," but he applauds lowered expectations on timely retirement.

"You have to try to break whatever conventional wisdom they had that 62 or 65 is necessarily the magic age for retirement and get [participants] to realize that ... it's just so much easier to work a couple more years, say at 65, than to retire at 65 and then find out in your 70s that you did not have enough money and try to get back into the workforce at that age," VanDerhei says.

Working longer, the research indicates, certainly does help. EBRI projects that 64% of 2,007 households age 50 to 59 would be considered financially fit for retirement by 70, compared with 52% by age 65.

 

 

Oncoming crisis

VanDerhei "absolutely" foresees a retirement crisis in the coming decades.

"Regardless of what happens," he says, "I think you're going to have individuals getting to that retirement age they select and basically spend down their retirement assets too quickly."

Employers, he says, need to make sure workers "understand what their relative savings targets should be in the first place, instead of just basically saying 'I'm going to match 50% up to 6%,' and employees take it as a signal that if they put in 6% that they're putting in the correct amount."

There is reason for cautious optimism: According to Fidelity, for the 14th consecutive month more participants increased their deferral rate than decreased it, 4.6% vs. 2.6%. Additionally, contributions continue to be allocated to more balanced investments; contributions into target date funds and other balanced options grew from 20% to 36% in the five years ending with 2012's third financial quarter.

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