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.

ad space

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.

ad space

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

 

---

[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

 

---

[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.

‘Scare’ Tactics

 Could someone please explain to me why the retirement industry keeps publishing ridiculous, uninformed and often ludicrous notions of retirement income needs?

Honestly, I have no earthly idea what value any rational thinking person would attach to the guesses that an uninformed public makes about retirement income needs. But then why any credible source would take those guesses and then AVERAGE them (cause you know how much more accurate an average is[i]) for publication is — well, it’s the kind of thing that makes my head hurt (particularly after repeated banging of my head on a table after reading another).

The latest I stumbled across came from BlackRock, which — based on a survey of “1,000 national registered voters in the United States” — declared that $2.191 million is the “average expected amount of savings needed for retirement.”

Seriously?

No wonder among that same group just 22% were deemed to be “extremely or very confident they will have enough money to live on throughout their retirement years.” I’m surprised it was that high.

Speaking of high, take just a second and apply the 4% drawdown “rule” to that wild-eyed estimate, and you’d find that produces $87,640 in annual income — on top of Social Security! Think people could muddle by on THAT?

Sadly, the sponsors of this survey have the ability to shrug, and say “well, that’s what people think.” But shouldn’t knowledgeable people in this industry have a responsibility to call “BS” on that kind of crazy assumption? 

Unfortunately, there’s not even a footnote here to suggest anything other than the perceived need is real — juxtaposed, I should add by the numbers this same (likely equally misinformed) group puts forth as the amount of savings they have.    

Look, BlackRock is not the only — and probably not the last — to put forth this kind of nonsense. Northwestern Mutual did so last April — even having the temerity to label it a “magic” number (though they “only” said it was $1.46 million). This being an annual “event” of theirs, I’m sure an “update” is forthcoming. More’s the pity. 

One assumes that the purveyors of these data points see it as a “wake up” call to folks, a motivation. But I think this “scare tactic” — there’s really no other word for it — is more likely just another sign to regular folks that they’ll NEVER manage to reach it — and surely some, perhaps most, just give up, or don’t even try in the first place. Not to mention the encouragement it doubtless provides to those who want to proclaim the system is “broken.”

What people think they’ll need is one thing — but I would argue that we have a responsibility to help them understand what they really need. 

And it’s not exaggerated, uninformed “scare tactic” guesses.

• Nevin E. Adams, JD

 

---

[i] Averages are easy math — but misleading. In this case that average tells us nothing about the relative breakdown on age brackets, incomes, where they live, their health, etc.  What someone needs (or thinks they need) living in New York City is (or should be) considerably different from the projections of someone living in Dubuque, Iowa.   

Better Than Average(s)

Nobody likes to be thought of as “average” – so why do people spend so much time worrying about the “average” 401(k) balance?

These averages are reported with some regularity by any number of providers (based on the records for which they have access), and sometimes by academics drawn from government databases.¹

The short (and less cynical) answer to “why” is most likely that the math is “easy.” You simply take the total assets (from whatever recordkeeper/plan balances you have), divide it by the number of participants in that group, and “voila” – you have an average.²

Now, when you stop and think about it (and many don’t), you realize that doing so adds together the balances of individuals in widely different circumstances of age and tenure – everything from those just entering the workforce (and who have relatively negligible 401(k) balances) with those who may have been saving for decades. It can also, in the case of government databases, add together those that have had an opportunity to save with those who haven’t, or who chose not to. That averaging also smushes together the accounts of individuals of vastly different income and financial status, who may (or may not) have other means of support, who may (or may not) be a primary source of retirement preparation in their household, who live (and may retire) in very different places – and, let’s face it, groups together individuals who are not only dealing with very different financial circumstances, but also likely have widely varying retirement security needs.

Moreover – and this generally isn’t highlighted – when you consider results from single provider estimates, all those differences are potentially magnified by the reality that individuals change jobs, and employers change 401(k) providers, and so, those “averages,” of necessity, include the experience not only of different individuals at a time, but different individuals from one year (and reported averages) to another.

As a consequence, while the math is easy, the result is not generally a very accurate barometer when it comes to assessing actual retirement accumulations.

So, how much could an “average” assessment distort things?

Consider the EBRI/ICI database maintained by the Employee Benefit Research Institute. At year-end 2016, the average 401(k) plan account balance was $75,358. On the other hand, the average of individuals who were in that database consistently – meaning that you are at least considering the same group of people during the period 2010 through 2016 – was $167,330. That’s right – twice as large.

However, as I’ve already noted, there are plenty of issues with focusing on averages. But if you take the average of a more homogenous group – say the individuals in this database who have not only been in the database consistently for the specific six-year period, but who have more than 30 years of tenure with their employer – it’s possible to get a much more accurate picture.

Even though some of that group may not have been eligible for, or participated in, a 401(k) throughout their career, it turns out they have accumulated significantly more – $338,735, in fact – an amount that could, even at today’s interest rates, provide an annuity of $1,909 per month (for a male age 65). By comparison, in 2017, the average monthly Social Security benefit for a 65-year-old male was $1,348.70 (for women, $1,076.19).

The math may not be as “easy.” But the answer, certainly in evaluating retirement readiness, is surely more accurate.

- Nevin E. Adams, JD
 
Footnotes

1. There are any number of issues with the underlying data, even from otherwise reputable sources. For more insights, see Crisis ‘Management,’ CPS Needs a New GPS, Data ‘Minding’ and Facts and ‘Figures.’ ↩
2. See also Why an Average 401(k) Balance Doesn’t ‘Mean’ Much. ↩