Things are starting to look up for retirement savers.
The average 4 01(k)s' balance in the U.S. rose by 10% in 2012 to $86,212, according to Vanguard's latest retirement report.
Not only are Americans saving more now that the worst of the recession has passed, but they've also benefited from the market rally and increasing contributions from employers.
The majority of account holders saw their accounts grow 67% over the five year period between 2007 and 2012. Here's how workers are improving their savings strategies:
They're wising up to crushing 401(k) fees. A whopping 82% of plan participants now hold at least part of their investments in low-cost index funds, including target-date funds.
They're letting go of control. In fact, when it comes to individual investors, many have stopped trying to actively manage their own accounts at all (smart move). More than one-third of workers have opted for a target-date fund, a balanced fund or a managed account advisory program. By Vanguard's estimates, this number will rise to 55% by 2017.
They're opting for Roth 401(k) plans in lieu of traditional 401(k)s. More than half of those enrolled in at least one Vanguard target-date fund went the way of the Roth.
All in all, workers have proven they're pretty solid savers. One in five are managing to tuck away 10% or more of their income into a 401(k) (the average is 10.5% nationwide). But just 11% maxed out their contributions, most of whom were high-earning, older males. Only 15% of workers over the age of 50 managed to make "catch-up" contributions in 2012 to make up for losses during the recession.
They're taking out fewer loans against their savings. Dipping into your 401(k) is tantamount to time traveling into your future and robbing yourself blind. Luckily, there's been a 3% decline in new loans against 401(k)s in 2012. Still, nearly one in five had outstanding loans of about $9,000, on average.
People are still investing in the market, just a little less than usual. The percentage of plan assets invested in equities, which was 73% in 2007, declined to 66%. Of course, we know what happened to 1% of savers who ditched the market altogether after the recession: They haven't bounced back nearly as quickly.
But we still have some work to do. O ne-third of participants saved less than 4% on their own, and 7% of workers declined to enroll in any defined contribution plans at all in 2012.
“While we are seeing good news overall in the retirement planning habits of participants, many Americans are still not saving enough for the future," Young said. “Simply put, people need to save more and save more now.”
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