U.S. workers investing in 401(k) retirement savings plans have kept contributing throughout the financial crisis even as the value of their accounts plunged an average 27 percent, a Fidelity Investments survey said.
The average 401(k) balance fell to $50,200 in 2008 from $69,200 the previous year, Fidelity said in a study of their plan holders released today. In 2008, 1.8 percent of workers took hardship withdrawals, compared with 1.6 percent in 2007, Fidelity said.
“Unlike previous downturns in the market, American workers recognize that having personal savings for their retirement is a need to have, not a nice to have,” said Scott David, president of workplace investing at Boston-based Fidelity. “And so they are much more prudent about these investments.”
The study, compiled annually by the largest U.S. administrator of 401(k) plans, comes as Washington policy makers re-evaluate how well the plans are working. At an October hearing of the House Education and Labor Committee, the Congressional Budget Office estimated workers lost $2 trillion in retirement savings over a span of 15 months.
Fidelity’s survey of 17,095 corporate 401(k) plans it administers showed that investors aren’t panicking, David said. Employees saved an average of $5,600 in 2008, slightly higher than in 2007. Fidelity compiles data on more than 11 million individual accounts.
The retirement snapshot also showed more investors were ready for the decline with more diversified portfolios. The percentage of plan participants 100 percent invested in equities was 16 percent in 2008, compared with 37 percent in 2000.
Most employees haven’t changed their asset allocations, David said. The exception was workers with accounts of more than $250,000 where 37 percent rebalanced their investments.
Another trend reflects the growing popularity of funds designed to reduce the employee’s decision-making responsibility. At the end of 2008, more than 60 percent of employers were using so-called lifecycle funds as a default contribution option, compared with 5 percent in 2005. Lifecycle funds automatically rebalance asset allocations according to a projected retirement date.
A separate study of investor behavior showed consumers are beginning to change some longstanding habits by saving more and carefully considering their finances, according to First Command Financial Services Inc., a Fort Worth, Texas-based planning company.
In questioning 1,000 households, First Command found 63 percent had lost money in retirement accounts, and more than half had reduced holiday spending, leisure activities or utility bills. Thirty-eight percent were taking lunch to work and 37 percent were buying generic products.
Half the households view their retrenchment as a long-term project. Forty-two percent said it will take between 1 and 5 years before their personal financial situation stabilizes. An additional 8 percent said it will be more than 5 years.
“They are starting to save more aggressively, and they’re making more provisions to pay down debt,” said First Command Chief Executive Officer Scott Spiker. “It looks like something is happening differently in the last two months. Hopefully, it will be a long-term trend.”
People surveyed were between the ages of 25 and 70 with household incomes of at least $50,000. The survey had a margin of error of plus or minus 3.1 percent.
