There have been plenty of reasons to think that anyone trying to save for retirement is destined to fail. But amid all the gloom and doom, investors got some good news for a change, as it looks like people are starting to make smarter moves with their money.
One of the most important tools workers have to save toward retirement is their employer-sponsored retirement account. Millions of workers have 401(k) plan accounts in which they can put money aside for their golden years on a tax-favored basis. Earlier this month, Fidelity treated us to a sneak peek at its 401(k) customer base and what they're doing to preserve their financial resources in a tough time for the economy.
Inch by inch
Slowly but surely, it appears that savers are making progress toward a healthier financial picture. Fidelity said that in 2011, the average employee contribution to their 401(k) plans rose to $5,750, up from $5,680 in 2010. On average, workers saved more than 8% of their annual salaries.
Still, workers also clearly have a lot of work left to do. The average account balance was just $69,100, making it clear that a 401(k) account alone isn't going to give most savers enough money to get by in retirement.
Making smarter choices
At the same time, more investors are using smarter investment options in their 401(k) accounts. For years, many savers simply used a default money market fund -- an option that right now pays next to nothing in income. As rules have changed to allow employers to use target-date retirement funds as default options, however, more workers have used them. Fidelity said that nearly half of all participants who were 35 years old or younger put their entire retirement savings in one of their target-date fund options.
In addition, investors aren't as jumpy as they once were, even during a year in which the stock market made some wild swings and ended up basically flat for 2011. Fidelity said that only about 10% of its participants exchanged money from one 401(k) investment option to another in 2011, suggesting that savers are more in tune with the long-term perspective for their retirement savings.
Most interesting to me, though, was the information Fidelity gave about employers. Of those actively participating in 401(k) plans, 82% of workers got contributions from their employers into their retirement accounts in 2011. Those funds came largely either from matching contributions by employers or through profit-sharing arrangements.
The trend toward greater employer participation in helping workers build up their 401(k) accounts is a double-edged sword. On one hand, it's excellent news that employers are once again in a position to help their workers with their retirement. During the market meltdown, Ford
On the other hand, employers may choose to contribute to 401(k) plans in lieu of even more attractive arrangements for workers. In the past month, General Motors
You're not doomed
The latest news from Fidelity doesn't mean that you'll effortlessly get everything you need in retirement. Setting up a viable financial strategy for your 401(k) account can take a lot of hard work. But what the survey does tell us is that workers are up to the task -- and they're doing the right things to prove the doomsayers wrong.
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Fool contributor Dan Caplinger is unusually optimistic at the moment. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Ford, Bank of America, and Weyerhaeuser. Motley Fool newsletter services have recommended buying shares of General Motors and Ford, as well as creating a synthetic long position in Ford.
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