Retirement savings account balances have shot up 93 percent since the economic downturn, but rising stocks alone aren’t fueling that growth, according to research by the Principal Financial Group.
Principal’s study found a significant increase in 401(k) participation and savings rates since the market crash, with account balances gaining 17 percent in 2013 alone to an average of $54,000.
“The economic downturn may finally be in the rear view mirror, but the lessons learned from the crisis are hopefully influencing our savings habits as a nation moving forward,” said Jerry Patterson, senior vice president of Retirement and Investor Services for the Principal Group. “While we still have a lot of work to do to help Americans save at more adequate levels for retirement, these numbers are a positive sign that retirement savings are moving in the right direction.”
The study also found a large rise in the number of employees boosting their contributions or deferrals into their employer’s plan; the number of participants choosing to increase their contribution rates has soared nearly 70 percent since 2009. And during that time period, the average employee contribution rate has jumped 14 percent.
“Employees are making great strides towards signing up to save more, but employees still succumb to inertia and often set and forget their savings,” said Patterson. “That’s one of the reasons we’re working with employers to design plans that use the power of inertia to help individuals continue to save at more adequate levels.”
As it is with many others, automatic enrollment is at the top of Principal’s list of recommendations. Key components include automatic enrollment of at least a 6 percent elective deferral, escalation of at least 1 percent a year up to 10 percent, and stretching the match by using a formula that encourages employees to defer at higher levels in order to get the full employer match.