Have You Fallen Behind the Rest of Us?

You may never know how much your buddy Edna in the next cubicle has socked away in her 401(k) plan. But with all the workplace retirement accounts they manage, the folks at Fidelity Investments have their fingers on the pulse of more than $1 trillion in managed money.

Fidelity recently released some interesting numbers. For example, among the 11 million participants in Fidelity-managed defined contribution plans (such as 401(k) plans), the average account balance jumped 13.5% between the first and second quarters of 2009, to $53,900. That doesn't mean that Edna has been saving like mad -- much of that increase is simply due to stocks rising in value considerably in recent months.

Still, more participants have been upping the portion of their income funneled into retirement accounts than those who have decreased it. That's good. Most of us can plow as much as $16,500 into them in 2009. So, if you're not contributing that much, stop and assess how much money you'll need in retirement, and how much wealth you can expect to accumulate at your current rate.

Crunching numbers
For example, let's say you're saving and investing $5,000 per year for 25 years until retirement, and you expect to earn an annual average of 8%. (The market's long-term average is around 10%, but you should never count on that.) If so, you'll retire with $395,000. Based on research discussed in our Rule Your Retirement newsletter, in order to make your money last, you should conservatively aim to withdraw 4% of it annually (adjusting it for inflation each year). So your $395,000 would generate an income of $15,800 in your first golden year -- about $1,300 per month. If that doesn't seem like it will be enough, then you need to make some adjustments. (Hint: Spend some time playing around with a compounding calculator, trying out different scenarios.)

Bad news
Here's another tidbit from Fidelity: Many participants have been shifting their assets into more conservative investments, meaning less money is going into stocks. In the quarter, some 68% of assets went into stocks, down from around 75% in recent years.

I can see where the impulse comes from -- just look at 2008's stock market implosion. Unfortunately, investing more conservatively isn't always the best idea. Just revisit that compounding calculator and you'll see that most of us need to aim for a relatively high average rate of return in order to meet our goals. And over long periods, stocks have usually outpaced bonds. If your money has 20 or more years to grow, stocks should look rather attractive to you.

Here's another argument for investing in stocks, especially right now: This is an exceptionally promising time for stocks. With them having fallen so far recently, often to bargain levels, many have been left much more likely to rise than fall further. And so far in 2009, many have indeed risen considerably already:

Data: Motley Fool CAPS. As of Aug. 28.

Of course, you might think that after a big rise, these stocks may not have much further to go up. Yet despite those gains, they may still be good long-term performers for you -- each still has the confidence of many participants among our Motley Fool CAPS community of investors.

Especially after the bear market we've seen, it's only natural to want to reduce your risk to avoid similar losses in the future. But to save enough for a prosperous retirement, you can't cut your risk too much. The key is finding stocks that have the upside potential to restore your portfolio to its former glory.

John Rosevear thinks the stock market isn't out of the woods yet. Learn how you can prepare for the next crash.