Young 401(k) Savers Are Getting Richer

Because younger participants’ account balances tended to be smaller, their contributions produced significant percentage growth in their account balances, the report explains.

During the study period, 401(k) participants tended to concentrate their accounts in equity securities. On average at year-end 2020, more than two-thirds of consistent 401(k) participants’ assets were invested in equities, and younger 401(k) participants had higher concentrations in equities than older 401(k) participants.

Consistent 401(k) Savers Make Great Potential Clients

The EBRI-ICI report points out that any meaningful analysis of the potential for 401(k) participants to accumulate retirement assets must examine the 401(k) plan accounts of participants who actively engaged with their accounts over all of the years being studied — i.e., consistent participants.

For example, because of changing samples of providers, plans and participants, changes in account balances for the entire database are not a reliable measure of how individual participants have fared. A consistent sample is necessary to accurately gauge changes, the report emphasizes, such as growth in account balances.

Trends in the consistent group’s account balances highlight the powerful accumulation effect of ongoing 401(k) participation. At year-end 2020, 22.2% of the consistent group had more than $200,000 in their 401(k) plan accounts at their current employers, while another 15.8% had between $100,000 and $200,000.

In contrast, in the broader EBRI-ICI 401(k) database, just 11.4% had accounts with more than $200,000, and 9.0% had between $100,000 and $200,000. Reflecting their higher average age and tenure, the consistent group also had average and median account balances that were much higher than the average and median account balances of the broader database.

Specifically, at year-end 2020, the average 401(k) plan account balance of the consistent group was $158,361, or more than 80% higher than the average account balance of $87,040 among participants in the entire EBRI-ICI 401(k) database.

Even more impressive, the median 401(k) plan account balance among the consistent participants was $62,134 at year-end 2020, nearly three and a half times the median account balance of $17,961 for all participants.

As these data points show, a given 401(k) plan participant might not meet a firm’s minimum to take them on as a wealth management client today, but that can easily change in the future. Not only are younger Americans rapidly building wealth in the workplace, many expect to get an inheritance or to profit from the future sale of a business.

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