What ‘Average’ 401(k) Balances Really ‘Mean’

 Every few months another headline pops up lamenting the inadequacy of the “average” 401(k) balance. The implication is usually the same: Americans aren’t saving enough, retirement is in peril, and the numbers prove it.

The problem isn’t that the math is wrong.

The problem is that the math is answering the wrong question.

I’ve noted before how misleading averages can be — and, frankly, medians aren’t a lot better when it comes to tracking 401(k) savings. The issue isn’t the arithmetic; it’s the reality of how people actually work and save.

Because people change jobs.

And when they change jobs, they change 401(k)s — and 401(k) providers.

They might leave the balance behind with the old employer (something that happens a lot). They might roll it over to an IRA (which probably happens a lot as well), in which case it disappears from 401(k) tracking altogether. Or they might roll it into their new employer’s plan — though that still seems to be the minority outcome.

Regardless of what they do, something important happens at that moment: their 401(k) accumulation effectively resets.

Fast forward 10 years. That old 401(k) left behind at a previous employer has received no new contributions. When someone looks at that account as an accumulation, it appears stagnant — and usually inadequate.

Meanwhile, the 401(k) at the new employer started from scratch. Contributions resumed, of course, but from a starting point of zero. They might be aged 40, mid-career, but THAT 401(k) balance looks like they just started.

In other words, the saver didn’t stop saving. Their savings are split in two (and sometimes more than two, depending on job change. As a result, when each recordkeeper publishes reports on “average” balances — well, they only have part of the picture.

Sometimes far less than half.

The Rare Glimpse of the Full Picture

Over the years, one of the few organizations able to transcend these limitations has been the Employee Benefit Research Institute (EBRI)/Investment Company Institute (ICI). By combining data across multiple recordkeepers and tracking individual participants over time, EBRI has occasionally been able to piece together something closer to the real story.

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When they do, the results look very different from the usual headlines.

In analyses that follow consistent participants — people who remain in the database and continue contributing over time — balances are dramatically higher than the averages typically cited in the press.

In one such analysis, consistent savers had nearly double the average account balance of the broader database, and nearly four times the median balance.

Which makes you wonder about all those conclusions based on averages of inconsistent participants.

Or, put differently, averages that mix savers with non-savers, continuous participants with short-term ones, and workers who may have balances scattered across several plans.

The math is correct — but the conclusion is anything but.

Encouraging Signs in the Latest Data

That context makes the latest quarterly report from Fidelity particularly interesting.

Now, to be clear, Fidelity’s data only reflects account balances within its own system. But because it can track participants who have been saving continuously within its plans, it offers another useful lens on long-term saving behavior.

And the numbers are actually pretty encouraging.

Among participants with 15 years of continuous savings, balances are approaching $700,000. Even those with just five years of continuous participation are nearing $400,000.

What’s especially striking is who’s leading the way.

Gen X.

Yes, that much-maligned “middle child” generation between the Boomers and Millennials appears to be saving more aggressively than either group in these cohorts.

Apparently the forgotten generation has been quietly doing its homework.

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Now, none of this is meant to suggest that 401(k) balances are universally sufficient, or that retirement readiness isn’t a legitimate concern.

But averages — particularly the ones most often cited — are, at best, a blunt instrument for measuring that reality.

They frequently combine savers and non-savers, new participants and long-tenured ones, small plans and large plans, high earners and entry-level workers, those at the cusp of retirement and those just getting started. They split individuals’ savings across multiple accounts and sometimes lose track of them entirely. Oh, and things like compensation level, geography and even gender? Never even acknowledged.

The resulting number is mathematically accurate.

But as a measure of retirement readiness?

It’s nearly useless. Worse, actually — it paints a reality that is, surely for some, disheartening.  

Which brings us back to what actually matters.

Consistent saving.

Because when you look at people who contribute regularly over time — whether through EBRI’s long-term datasets or recordkeeper cohorts like Fidelity’s — the story changes dramatically.

Balances grow. Substantially.

And that suggests something worth remembering the next time someone waves around the latest “average 401(k) balance” headline as proof that the system is failing.

For those who actually use it as intended, the 401(k) was never meant to be the end.

It’s a means to one.

• Nevin E. Adams, JD

Things That Make Me ‘Mad as Hell’ — Part 2

 Last week, I shared a list of things that make me “mad as hell” — things that those in our industry generate, promote and often share as fact without any application of common sense, and no apparent appreciation for the damage done by their complicity in sharing such nonsense. 

Here’s the rest of the list: 

Reporting on average — well, anything (see Why an Average 401(k) Balance Doesn't 'Mean' Much).

You name it, if it involves numbers from widely varied sources, individuals, or different time periods, somebody in this industry will report it as an arithmetic average. This industry continues to insist on reporting average 401(k) balances, average fees, average estimates on retirement needs, and more recently “forgotten” average account balances. I get it. Averages are widely considered to be a middle of the pack assessment of reality.

But that’s only true when you are averaging things that are similar, and more importantly real. If you take numbers from completely different time periods, from individuals with a wide disparity of existence, or — worse yet — take completely made-up numbers compounded by wild exaggerations — and average them … well, you get mush. And that’s a kind assessment.

Surveys that show an average or median account balance — with no delineation for age or tenure. See 4 Things That Make Me Go ‘Huh?’

So, if you take the average balance of a 24-year old who has just started contributing, and add it to that of a 55-year-old who has been saving for a career — and then average those together … on what planet would that tell you ANYTHING about the real state of retirement plan saving or preparation? 

And yet, that “average 401(k) balance” is routinely referred to in the press, and “dutifully” reported even by the trade press as though its some kind of magic barometer on the actual state of retirement security.

Worse, every year that number is presented against the average (of averages) from the prior year as though that change tells us anything about the actual progress of anything beyond the ability of folks to do simple math, and with no acknowledgement as to just how silly it is to blend together the cumulated savings of individuals who are paid a wide range of salaries, who defer at widely different rates, who live in completely different parts of the country, and who range in age (and participation) from “yesterday” to decades. 

Yes, I’d say that your average 401(k) balance is, generally speaking, mathematically accurate — and, at least in terms of ascertaining the nation’s retirement readiness, nearly completely useless.

A single provider survey that shows an average or median account balance. See Why an Average 401(k) Balance Doesn't 'Mean' Much.

Most of these average account balance surveys are, in fact, the average of account balances of those whose balances are maintained by a single firm. Aside from the obvious disparities noted above (age, tenure) that distort the result into meaningless mush, we all know that people change jobs — and that employers change recordkeeping providers — all the time.

So, if my 401(k) balance is part of Recordkeeper A’s portfolio this year, but my employer changes recordkeepers so that my balance (and that of my co-workers) is part of Recordkeeper B’s portfolio the following year — imagine how that might (and should) impact the so-called “average” 401(k) balance that Recordkeeper A reports — suddenly several hundred million dollars “disappear” — particularly when it chooses to apply some percentage change to those two different years.[i] 

Tell me again why anybody thinks that number — much less the variance — tells me anything relevant about the state of retirement savings/security.

Surveys that claim participants want things they can’t possibly understand. See Talking Points: (Just Because) Survey Says?

In recent days, we’ve been assured that participants are clamoring to have access to private market investments. Before that, it was cryptocurrency — and for what seems like months now it’s all been about retirement income. Apparently vast majorities of participants are eager to have access through their 401(k) to an array of complex financial instruments to which they have, thus far, been largely (or totally) barred — or so surveys say.

Indeed, I’ve always been amazed that organizations are able to find so many ostensibly knowledgeable participants to weigh in on these complex topics — particularly since there is an abundance of (other) surveys that suggest that when it comes to financial matters, participants are, largely, clueless.

Not that that seems to dampen their collective interest in these new options — though when given a chance to put their money where their mouth is, participants seem to be about as cautious as you’d expect (want?) largely financially clueless individuals to be. Doubtless the questions posed in those surveys are less complex than the actual decision points turn out to be.

That said, and not to be TOO cynical — the vast majority of these surveys are sponsored by, and in many cases, conducted by the very firms that are manufacturing the very products that their surveys say participants want.

I’m not saying they couldn’t have found individuals that do, or that they weren’t able to pose the questions (or present the responses) in a way that supports those conclusions.

But it does make you wonder…

Data “analysis” that takes real stuff, combines it with fake stuff, makes up a new scary-sounding name for it, and then claiming that vast majorities of all the retirement plans in existence are in “violation.” See Talking Points: A Red Flag for a ‘Red Flag’ Report.

As you can tell from the above, there are plenty of mis- or exaggerated positionings of data (real and imagined) to take issue with. But the most egregious example of this in recent memory was a report that claimed — based on an “analysis” of Form 5500 filings — that 84% of all (that’s right ALL) retirement plans in the United States have “at least one likely Employee Retirement Income Security Act (ERISA) red flag from a regulatory and/or fiduciary violation.”

Now, we all know that at any given moment, there are plans with issues. That said, and as with the “analysis” on “forgotten” accounts, this one is just silly on its face. Not that that kept even the trade press from dutifully (almost breathlessly) sharing that headline. And then they proceeded to detail — without comment/context — the basis for that “assessment.”

See, they made up categories; Regulatory Infraction Red Flags (RIRF) and Egregious Plan Mismanagement Red Flags (EPMRF). Nothing illegal about that — and to their credit, they at least detailed the “red flags” that would cause a plan to be tagged in one (or both) of those categories.

Regarding the former, those 1) had loss from fraud or dishonesty; 2) not offering qualified default investment alternatives (QDIA); 3) an insufficient fidelity bond; and 4) not 404(c) compliant. With a straight face, the firm claimed that at least 328,833 retirement plans had at least one of these RIRFs, representing approximately 43% of the total plans. And with an equally (and much more disappointing) straight face, the trade press glossed over the reality that neither offering a QDIA nor being 404(c) compliant were requirements under ERISA.

As for the latter, those “infractions” (their word choice, not mine) were detailed as “1) Not including automatic enrollment; 2) No corrective distribution of excessive contributions; 3) No 404(c) with participant-directed accounts; and 4) Failure to transmit payments on time.” Once again, we don’t have a breakdown of how many in which category, but they claim that at least 584,113 retirement plans had at least one EPMRF, representing approximately 76% of the total plans. And, once again, they just ignored the reality that neither automatic enrollment nor 404(c) compliance is legally required (unless it’s a plan adopted after Dec. 29, 2022, and those won’t yet have shown up in the Form 5500 data). And, once again, the trade press just reported these categories and criteria “straight.”

Look, an advisory firm can set out whatever standards it deems appropriate, affix clever (if arguably misleading) names (and acronyms) to practices that fall short of those individual standards, and even issue a press release proclaiming that it has found the vast majority of plans in existence are found “wanting” based on those standards — doubtless in hopes that it will be picked up and shared uncritically by the media (and read by potential clients). 

But is that the kind of firm you’d be wanting to help ensure legal compliance?

What to Do

One would like to think that with the readership here, all it would take is for yours truly to hold this kind of stuff up to the light, and we’d self-correct, or disappear altogether. Worst case, you’d hope that the trade press would at least apply a context filter to their reporting. Sadly, several of the things on this year’s list continue to be reported and carried — with no context or caveat — year after year.

And let’s face it, every time someone writes about them — even critically — it generates both the awareness, “clicks” and impressions that feed and fuel the impact metrics that PR firms used to benchmark success. Like Howard Beale on Network, the crazier and more outrageous the commentary, the more likely it will get picked up. I’ve even tried ignoring the nonsense — but with expanded access to social media, I find that a growing number of “us” are uncritically sharing and forwarding, perhaps on the assumption that you can’t put out a press release with made up stuff in it.

I’ve tried to comment on that stuff — included links to my analysis, where applicable — and hoped to encourage caution, if not responsibility, in those actions. Trust me, folks who don’t like the 401(k) or the private retirement system are looking for this kind of commentary to undermine confidence and support in those systems.

Today I would quite simply ask each of you to pause when you see the types of things I’ve noted here — if you see merit in sharing them, please consider providing context to go with that share.

And if it’s clearly nonsense on its face, please join me in calling it out for what it is — “BS.”

Maybe if enough of “us” hold them to account (and remember that some of “us” are “us”), we’ll all be better informed and better able to help folks build a financially successful retirement.

• Nevin E. Adams, JD

 

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[i] This can, of course, also happen at the individual participant level for someone who changes jobs and takes his/her balance either with them to a different provider, or perhaps takes it out altogether to an IRA.

 

A ‘Better’ Than Averages Report

 There were some good headlines about 401(k)s last week — but the numbers underneath those “averages” were even better.

Those headlines — reporting on Fidelity’s Building Financial Futures: Q1 2025 report — noted that savings rates hit a record high in Q1, driven by a milestone employee contribution rate of 9.5%, and an employer contribution rate of 4.8% — the highest level to date in that survey. Those types of increases have previously been noted in surveys by the Plan Sponsor Council of America, but this one commented that the combined savings rate of 14.3% is the closest it’s ever been to Fidelity's suggested savings rate of 15%. 

That said, when you look inside those averages — Fidelity noted that Boomers[i] actually had a total savings rate of 17.2%, buoyed by a 12% employee savings rate, while Gen Xers had a 15.4% total savings rate (a 10.3% employee savings rate). Gen Z’s 7.3% employee savings rate and Millennials’ 8.8% rates — although robust for their life stages — actually dampened the “averages.”

Not as widely covered was that 17.4% of participants increased their contribution rate during the quarter (though 4.9% decreased it) — but here it was the younger generations leading the way, with 19.2% of Gen Zers and 18.1% of Millennials upping their “ante.” And while, on average, 61.9% had all their money invested in a target-date fund, that was 81% of Gen Z, but just 44.6% of Boomers. 

‘Average’ Bearings

All of those results, of course, are “averages” — though they are at least segmented by demographic groups that mitigate at least some of the distortions in the broad average.  

To their credit (and the positioning of Fidelity in their press release), most of the industry trade press focused on the increase in savings rate. Unfortunately, most of the “regular” press chose instead to headline the part about a drop in the average balances attributed to market volatility (3% in 401(k)s and 4% in 403(b)s). But while we’re on the subject of “averages,” while the “average” 401(k) balance[ii] at Fidelity was $127,100 — the “average” for Boomers was nearly twice that ($239,600).

Look, that “average 401(k) balance” includes a broad array of circumstances: participants who may (or may not) have a DB program, who are of all ages, who receive widely different levels of pay, who work for employers that provide varying levels of match, and who live (and may retire) in completely different parts of the country (and who experience very different costs of living). “Averages,” as “easy” and tempting as they are mathematically, can obscure — and even distort — those very significant differences. 

Which is why — when it comes to assessing reality — it’s better to look BEYOND the “averages.”

• Nevin E. Adams, JD

 

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[i] Generations as defined by Pew Research: Baby Boomers are individuals born between 1946 – 1964, Gen X are individuals born between 1965-1980, Millennials include individuals born between 1981 – 1996 and Gen Z includes individuals born between 1997 – 2012. 

[ii] That said, here are some points to keep in mind when trying to discern trends from “averages”: Why an Average 401(k) Balance Doesn't 'Mean' Much.

4 Reasons Why an Average 401(k) Balance Doesn’t ‘Mean’ Much

In recent days, we’ve gotten updates on average savings rates and 401(k) balances, and while for the very most part the reports have been positive and “directionally accurate,” I’ve always taken such findings with a grain of salt. Not so many in the press.

Indeed, the press coverage of those reports is generally quite negative, in the “how can people possibly retire on those small amounts” vein.

Here are four things to keep in mind about those “average” 401(k) balances.

Your average 401(k) balance may not be based on very many plans or participants.

Some reports of plan design trends and average balances may do so based on a relatively small customer base, and/or homogenous plan size. That doesn’t mean the results are without value – but let’s face it, sample size matters in discerning trends. The average 401(k) balance in a universe of 50 plans is surely less instructive than one that is a hundred times that size. In all surveys, sample size matters. And when it comes to averages, it matters a lot.

Your average 401(k) balance includes some very different people and circumstances.

Your average “average 401(k) balance” includes a broad array of circumstances: participants who may (or may not) have a DB program, who are of all ages, who receive widely different levels of pay, who work for employers that provide varying levels of match, and who live (and may retire) in completely different parts of the country. You might even have situations where ex-participants (who have zero balances in this plan, but might have balances elsewhere) are included in the mix. Those are all factors with enormous impact in terms of evaluating retirement income adequacy, and yet, because it is an average of so many varied circumstances, the result is almost never “enough” to provide anything remotely resembling an adequate source of retirement income.

This conclusion that the average is woefully inadequate as a retirement income measure is the main point, and often the only point, that is reiterated somewhat incessantly (and generally without the caveats about its somewhat tortured compilation) in the press.

Your average 401(k) balance doesn’t include the same people.

People change jobs all the time, and with astonishingly persistent regularity. High-turnover plans and plans in high turnover industries, almost by definition, will pull down averages. And when workers change jobs, they “start over” in their new employer’s plan. The bottom line is that the average 401(k) balance from a year ago almost certainly doesn’t include exactly the same participants. So exactly how valid are trendlines in average balances among completely different individuals?

Mitigating the distortions inherent with these averages, the nonpartisan Employee Benefit Research Institute (EBRI) makes a point of reporting on consistent 401(k) savers, specifically in its most recent analysis, participants who were part of the EBRI/ICI 401(k) database throughout the five-year period of 2010 through 2015. Their report finds that this consistent group had median and average account balances that were much higher than the median and average account balances of the broader EBRI/ICI 401(k) database. How much higher? Nearly double at the average, and consistent participants had nearly four times the median account balance of the broader group.

Makes you wonder about all those conclusions based on the averages of inconsistent participants…

Your average 401(k) balance doesn’t include the same plans.

It’s not just workers who move around – 401(k) plans change providers all the time. And when they change providers, their plan and participant balances move as well. So, if in 2015 your plan (and 401(k) balances) were being recordkept by Provider A, those balances would be picked up in their report of average 401(k) balances. Now, you change to Provider B in 2016. All of a sudden your plan’s account balances “disappear” from Provider A’s reporting – and now show up in the numbers reported by Provider B. The net effect? Well, that could mean that the average balances as reported by Provider A decrease – not because of any change in savings behaviors, but simply because a plan (and its accompanying balances) have moved to a different provider’s base.

Yes, I’d say that your average 401(k) balance is, generally speaking, mathematically accurate – and, at least in terms of ascertaining the nation’s retirement readiness, nearly completely useless.

- Nevin E. Adams, JD

Comparison “Points”

Every year about this time, we get reports from firms that purport to tell us how much time is spent in preparations for the NCAA basketball tournament—and, no, not by the teams and coaches. The “studies” (ironically, they’re always put out by firms that are in the business of helping people find jobs) generally make some assumptions about the amount of time people spend on the workplace pools as well as how many people will participate, and their compensation levels, and—voila—the productive time ostensibly “lost” to these activities. Now, they make a lot of assumptions to get to that result, including the assumption that, but for these pools, people would be doing nothing but working. But the results give journalists something easy—and “fun”—to write about, and the rest of us to read and talk about (some day someone should do a study on how much time and money is wasted writing and reading about those “studies”).

Our lives are filled with such reports: perhaps valid points that are, like it or not, supported by data that is—well, let’s just say it’s “squishy.” These reports are designed to provide some interesting if “low hanging” fruit for media coverage—and it works. The sponsoring firm gets some free press, the journalist gets some easy copy, and the reader—well, you get some interesting, if not completely meaningful, information.

And our industry is no exception. Here are some of the industry “data points” that, IMHO, are things we probably shouldn’t care about.


How the tiny minority of participants who realign their balances in any given month choose to do so.

Let’s face it, in any given month—heck, in any give YEAR—only the tiniest numerical sliver of retirement plan participants make a change in how their accounts are invested. Those who do could be doing so for any number of reasons, but inevitably those who do seem to be selling—and buying—the wrong things at the wrong time, fleeing stocks when the market takes a tumble and buying at the peak. And yes, it’s hard to avoid a certain “can you believe these idiots?” undercurrent in reporting on these movements.

Sure, highlighting the missteps of the few can provide fodder for reinforcing positive long-term investing messages. But the vast majority of participants never—ever—touch their balances.

Not that we should be wholly comfortable with that.

The investment performance of defined benefit versus defined contribution plans.

Every so often, a report comes out that reminds us that defined benefit plans turn in a better performance than defined contribution plans. What we’re apparently supposed to draw from that is that DB plans are better-managed in terms of asset allocation by professionals, better able to negotiate lower fees than their DC counterparts, and generally provide a better return on investment. In other words, DB plans are “better.”

But those who get to that result generally do so by sampling against a finite number of plans, and sampling matters (sampling ALWAYS matters). Plan size is a factor, of course, but while a defined benefit plan is ostensibly a single pool of money being managed to obtain a certain aggregate objective, a defined contribution plan is an aggregation of individually managed objectives. Now, I’m not saying that all, or even most of, those individually directed DC plan allocations are as well-designed or maintained as that put in place by a DB investment committee, but unless your defined benefit plan has a single participant, those programs have completely different objectives and timeframes. You might as well be comparing a sports car to a Hummer; which is “better” depends on the distance, the terrain, the length of time you have to complete the journey – oh, and how much fuel you have.

That said, in 2009, guess which did “better”?

That “average” 401(k) balance.

If there is one number I wish our industry would quit publishing, it’s the average 401(k) balance. As noted above, “averages” have their limitations, but the variations in this particular average are enough to make one’s head spin. Here you have participants who may (or may not) have a DB program, who are of all ages, who receive widely different levels of pay, who work for employers that provide varying levels of match, and who live (and may retire) in completely different parts of the country. But in preparing this number, we slop them all together and create—mush.

Worse than mush, actually. That number is never “enough” to provide anything remotely resembling an adequate source of retirement income, a point that is reiterated somewhat incessantly (and without the caveats about what it is an average of) in the press. I’ll allow that some of the permutations of this calculation—such as when we see that average by age demographic—can be instructive for longer-term trends, though my strong preference is for a median reading, but an average 401(k) balance is akin to an average reviewer rating on Amazon.com. It’s mathematically accurate—and completely useless.

IMHO, averages often obscure as much as they reveal—and this average does so more than most.


—Nevin E. Adams, JD

See “DB Returns Beat DC Returns Through 2008”

http://www.plansponsor.com/IMHO_Goal_Lines.aspx