06 September 2011|
Simply setting up a 401(k) plan isn't enough. You need to educate your employees, too. At least that's what Smart Investor takes away from statistics on the gap between the amount people need for retirement and what they've actually saved in their 401(k) plans.
A mere $71,500 was the average 401(k) balance across 11 million Fidelity accounts at the end of 2010. This may sound big compared to your employees' salaries. However, it compares unfavorably with the estimated $740,000 "needed to deliver an annual income of $50,000 per year for 25 years, assuming a 5% rate of return and no inflation," according to Morningstar.com's "25 Shocking but True Statistics About Retirement." Increase the inflation expectation to 5% and your employees will need to almost double their savings to $1.25 million to reach the same income goal, according to the same Morningstar.com article.
Of course, it's unlikely that all or even most of those Fidelity account holders were near retirement age. So they had some time to build their assets.
Indeed, "For participants who were continuously active for the past 10 years, their average balance increased to $183,100 at the end of last year from $59,100 at the end of the fourth quarter 2000," according to a Fidelity press release. That number is more encouraging. However, it still suggests a gap between actual savings and eventual needs.
If you’d like to discuss how to set up an economically priced, hassle-free 401(k) plan for your company, contact us at 916-435-2100.