The balance of the average 401(k) account reached a record of nearly $90,000 last year. On the other hand, Fidelity Investments’ annual snapshot of the plans it provides provoked concern that more than a third of workers cashed out their retirement savings when they changed jobs.
The rebound in 401(k) accounts provided by Fidelity, the nation’s second-largest retirement plan administrator, continued the turnaround from March 2009, when the average was $46,200. For those nearing retirement of at least age 55, the average nest egg totaled $165,200.
Much of the growth in balances came from the stock markets, which hit records last year, with 22 percent due to employee contributions and matches from employers.
Among those draining their 401(k) accounts, workers 39 or younger were most likely to take that step, with 41 percent doing so. Taking the money, which averaged $16,000, might help them meet short-term needs, but workers lose out on years of investment gains.
The effect on retirement was illustrated by an example Fidelity provided.
The cost to a 30-year-old removing $16,000 from retirement savings would be $471 per month, assuming 26 years of retirement that begins at 67.
Fidelity noted that cashing out a 401(k) balance would also mean paying $4,800 in taxes and penalties, leaving $11,200.
“People with a 401(k) who change jobs have a critical decision to make: take the quick cash, or keep the balance in their existing plan or roll it over into another tax-advantaged account, two options that may provide them considerable income in retirement,” said James MacDonald, president of Workplace Investing at Fidelity, in a statement.
“Fidelity knows this decision isn’t easy…. we urge all investors – especially young savers with years of potential investment gains – to keep their 401(k) savings working for them….
Better options for workers switching jobs are leaving the money in the previous employer’s retirement plan or rolling it over into an account at the new workplace or into an IRA.