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-- As 401(k) turns 25 years old, Fidelity calls for greater participation
among the 19 million eligible workers who don't save in the workplace --
BOSTON, January 25, 2006 - Fidelity Investments reports that Baby Boomers turning 60 years old this year, at a rate of nearly 8,000 per day1, surpassed the $100,000 mark with an average balance of $112,000 in their 401(k) accounts at the end of 20052.
Given this progress, combined with what older Boomers, ages 50-59, are expecting from social security, pensions, and personal savings, Fidelity projects this group is on track to replace 60 percent3 of their pre-retirement income. While this is one of the highest income replacement rates of any age group, it still lags the minimum 85 percent recommended by Fidelity.
"The 401(k) will be a vital source of income for older Boomers, but even factoring in that this group will likely reap greater pension and social security benefits than future generations, they still face a substantial income reduction in retirement," said Jack Callahan, president, Fidelity Institutional Retirement Services Company, the nation's largest provider of 401(k) plans.
Research from Fidelity's Retirement IndexSM shows 61 percent of older Boomers expect to receive a pension to help supplement their retirement savings, compared with 42 percent of younger workers, born after the Boomer generation. Additionally, 50 percent of older Boomers believe they will need to work in retirement to cover basic expenses, with 37 percent having to do so just to pay for health expenses.
"Younger Boomers and Generation X need to face the reality that their retirement security will rely even more heavily on workplace and personal savings, than those Boomers turning 60 now," said Callahan. "This is why Fidelity urges the more than 19 million eligible American workers, who are not enrolled in their employer-sponsored 401(k) plans4, to sign-up immediately, maximize their contributions and take advantage of additional savings vehicles, such as an IRA."
Half Million Reasons to Save
If a 35 year-old earning $45,000 per year, who enrolled in a 401(k) plan this month, consistently contributed 10 percent of his or her earnings each month, and received a 3 percent employer match, he or she could potentially accumulate over $500,000 in retirement savings by the age of 60. This hypothetical estimate assumes a market return of 7 percent per year and annual pay increases of 3 percent5.
As the 401(k) industry marks its 25th anniversary this year, more than 32 million participating Boomers have collectively saved over $1.2 trillion in 401(k) plans, accounting for nearly 60 percent of overall U.S. 401(k) retirement savings6.
"Fidelity, which celebrates its 60th anniversary this year, grew up with the Boomer generation and has been at the forefront of some of the historical changes to the 401(k)," said Callahan. "We believe the future holds even greater savings opportunities thanks to next generation plan features such as automatic enrollment, automatic contribution increases and more diversified asset allocation through lifecycle funds."
These enhancements could lead to dramatic improvements in income replacement rates for all workers and more than double that for low income workers7," Callahan said.
A Look Back
Few realized the impact IRS tax code - section 401(k) - would ultimately have on the retirement savings for millions of American workers when it was used to create retirement plans in 1981. According to the Employee Benefits Research Institute, by 1991 more than 111,000 companies offered the option and 19 million workers had saved $440 billion. By the mid-1990s, assets in these plans exceeded the trillion dollar mark and for the first time ever enrollment surpassed that of pension plans.
Today, the 401(k) is one of the primary retirement savings vehicles with more than
43 million participating Americans, more than $2 trillion retirement dollars8, and an average participant balance of $61,0009.
About Fidelity Employer Services Company
Fidelity Employer Services Company provides benefits and human resources administration, talent planning, payroll solutions and stock plan services to approximately 20 million employees in the U.S. as of December 31, 2005.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $2.4 trillion, including managed assets of more than $1.2 trillion as of December 31, 2005. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 21 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com.
12005 Census data
2Figure based on FESCo 2005 recordkeeping data indicating an average 401(k) balance of $112,000 for 59 year olds.
3Figure based on calculations by Fidelity's asset-liability modeling engine using data from a national online survey of over 500 working American boomers age 50-59 reporting at least $20,000 in HH income. The survey was conducted for Fidelity by Richard Day Research, Inc. from September 9-13, 2005.
4Based on data from Cerulli Associates
5This hypothetical is based on monthly contributions to a tax-deferred retirement plan, a 7% annual rate of return compounded monthly, and 3% annual pay increases at the start of every year. Your own plan may earn more or less than this example, and income taxes will be due when you withdraw from your account. Past performance is no guarantee of future results.
6Cerulli Quantitative Update: Retirement Markets 2005
7Based on July 2005 ICI/EBRI study
8July 2005 ICI/EBRI study
9Fidelity Investments, Building Futures VI, Copyright July 20, 2005
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Fidelity Investments Institutional Services Company, Inc.,
82 Devonshire Street, Boston, MA 02109 |
