Financial Planning, Retirement

Consistent 401(k) Participants Continue To Outperform

10/26/17 8:00 AM

iStock-463785991.jpgHave your retirement assets doubled since the recession? There is a good chance that the answer is “Yes” if you have been an ongoing participant in a 401(k) savings plan. At least that is what a recently updated study from the Employee Benefits Research Institute (EBRI) and the Investment Company Institute (ICI) suggests after analyzing the performance differences between 401(k) participants who have consistently stayed invested in a single plan and those who have not.

Indeed, 7.3 million of the nearly 26.1 million 401(k) plan participants in the EBRI/ICI database maintained accounts at the end of each year from 2010 through 2015 (most current data available). By the end of the sample period, more than a fifth (22.0 percent) of participants in the consistent group had a 401(k) balance greater than $200,000, and another 17.2 percent had between $100,000 and $200,000 in total assets. In contrast, only 10.2 percent of the broader EBRI/ICI 401(k) database, which includes participants and plans entering and leaving, had accounts with more than $200,000, and just 9.1 percent had balances between $100,000 and $200,000.

Further, the average 401(k) account balance of the consistent participant group was almost twice that of the broader database ($143,436 vs. $73,357), and the median was nearly four times as high ($66,412 vs. $16,732). The consistent group’s higher average age and tenure likely helped but ongoing participation still appeared to have provided a noticeable boost to asset growth over the sample period. Specifically, the average account balance for consistent participants increased by 91.3 percent from year-end 2010 through year-end 2015, and the median account balance jumped by 127.8 percent. Those gains equate to compound annual average growth rates of 13.9 percent and 17.9 percent, respectively, over the 5-year horizon.

The continued rebound in the stock market during the sample period of course played a big role in this growth but consistent 401(k) participants again easily outperformed the broader group thanks to added help from steadier plan contributions and lower overall withdrawal and loan activity. Altogether, this is another report that provides evidence of how long-term investment time horizons coupled with the accumulation effect of ongoing 401(k) participation can together help smooth out return profiles and maximize portfolio performance.



Sources: Employee Benefits Research Institute, Investment Company Institute

Post author: Charles Couch