Many Still Not on Track for Retirement Despite Stock Gains

Monday, 17 Feb 2014 10:56 AM

By Michael Kling

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Even though rising stock markets helped boost 401(k) balances to record highs, huge numbers of Americans remain ill-prepared for retirement, new studies show.

Because of last year's gains in financial markets and home values, fewer households are likely to run out of money during retirement, according to an analysis by the Employee Benefit Research Institute (EBRI).

But the gains were modest, and many will probably run out of money in retirement. The probability that Baby Boomers and Generation Xers would not run out of money in retirement increased between 0.5 and 1.6 percentage points, it says.

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

Even with the improvement, just 56.7 percent of early boomers and 58.5 percent of late boomers are ready for retirement.

Retirement readiness varies widely, the study says, depending on eligibility for retirement plans and risks of long life and high health care costs.

The average 401(k) balance hit a record high of $89,300 at the end of 2013, up 15.5 percent from the previous year and nearly double the average $46,200 during the market bottom in 2009, according to research from Fidelity Investments. The average balance was $165,200 for pre-retirees 55 and older.

While a rising stock market produced 78 percent of the gain, employee and employer contributions accounted for 22 percent of the increase, showing the importance of contributions in spite of market volatility, according to Fidelity.

However, Fidelity found what it calls a disturbing trend.

Over third (35 percent) of all 401(k) participants cashed out their funds when leaving their job in 2013, with an average cash-out value of about $16,000. And more than 40 percent of participants ages 20 to 39 — who, ironically, have the best chances of building long-term wealth — cashed out when leaving jobs.

Investors who cash out forfeit years of potential investment growth and retirement cash flow.

For example, a hypothetical 30-year-old who cashes out $16,000 could lose $471 per month in retirement income. Workers also face federal and state taxes plus a 10 percent early-withdrawal penalty.

"Everyone's personal financial situation is different, and there are times when a person must have access to cash," says Fidelity's President of Workplace Investing, James MacDonald. "However, we urge all investors — especially young savers with years of potential investment gains — to keep their 401(k) savings working for them in a tax-advantaged retirement account when changing jobs."

Editor’s Note: 250% Gains Bagged Using Secret Calendar (See Video)

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