Contributions Blunt January Market Slide in 401(k)s

Never underestimate the impact contributions make in helping provide a more secure retirement.

Major U.S. stock indexes struggled through what was for the Dow (down about 5.5%) and S&P 500 (off 4.8%) their worst January since 2009. The tech-laden NASDAQ dropped nearly 8%, and a recent headline proclaimed: “Almost everything lost value in January” — including, as it turns out, average 401(k) balances.

However, the damage was muted by contributions. The nonpartisan Employee Benefit Research Institute (EBRI) estimates that the average account balance of younger, less-tenured (age 25-34, with 1-4 years of tenure) workers shed 2.0% in January.

The average balance of older workers, notably those with 20-29 years of tenure, aged 55-64, which tends to be more sensitive to market swings due to those workers’ larger account balances, also lost ground, but “only” 2.2%. The accounts of younger, less tenured workers are more likely to be influenced by contribution flows.

2015 Gains

EBRI’s estimates of the annual change in average account balances for 2015 revealed an increase of 22.6% among younger, less-tenured (age 25-34, with 1-4 years of tenure) workers, though older workers — specifically those with 20-29 years of tenure, aged 55-64 — rose 2.4%.

The EBRI/ICI database includes demographic, contribution, asset allocation and loan and withdrawal activity information for millions of participants. EBRI has produced estimates of the cumulative changes in average account balances — both as a result of contributions and investment returns — for several combinations of participant age and tenure.

You can access reports of both cumulative and monthly average account changes here.

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