What They’re Not Telling You about Your 401(k)

Here’s the headline from The Washington Post:

401(k) retirement account values robust as stocks rise

Wall Street’s historic gains in 2013 have boosted the value of Americans’ retirement accounts to record highs, according to several plan managers, restoring a critical component of household wealth.

Fidelity Investments, the nation’s largest provider of retirement plans, said the average balance in its accounts at the end of last year was $89,300 — nearly double the amount during the depths of the recession.

Vanguard, another major fund manager, said its plans clocked in at $101,650, the highest level since it began tracking the data in 1999.

“While there is more to be done to help Americans save more effectively for their retirement, these are positive trends that show we are clearly moving in the right direction,” said Jean Young, senior analyst at the Vanguard Center for Retirement Research.


Sounds good, right?  That is, until you take a hard look at the numbers.

The story implies that there’s this giant bell curve of “middle Americans” with nearly $90,000 in their retirement accounts.  But that couldn’t be further from the truth. 

Here’s a chart of the real distribution of cash in Americans’ 401(k)s:


By the way, a “70th percentile” household is making $75,000 a year!  A “50th percentile” household is making $50,000 and below.  Now, those numbers are from 2010, rather than 2013, after the Dow’s “historic gains”. 

But even doubling those numbers doesn’t paint a rosy picture for the Middle Class.  And that’s the REAL story that’s not being told about 401(k)s.  According to the CNN Money calculator, a $60,000 a year earner would need $890,000 in today’s dollars in his retirement account in order to adequately carry him through his expected retirement.  That’s TEN TIMES even today’s optimistic IRA average balance of $89,000!  And the dirty little secret that’s not being divulged:  it’s actually mathematically impossible for that $60,000 a year earner to amass that fortune, even through the most draconian savings plan.  Even if he managed to sock away $15,000 a year (which is optimistic, at best), the average 25 year old would need to work until the ripe old age of 151 before he could comfortably “retire”.

But hey — the Dow is up, so it’s all good, right?