August looks to have been a good month for 401(k) participants. For individuals in the EBRI/ICI database during the month, the average account balance rose 4.4% for participants ages 25-34 with one to four years of tenure (and consistent participation since 2012), while the average account balance also rose 2.6% for participants ages 55-64 with 20-29 years of tenure.
Three primary factors impact account balances:
- Contributions;
- investment returns; and
- withdrawal/loan activity
The percent change in average account balance of participants in their 20s is more heavily influenced by the relative size of their contributions to their account balances, in contrast to older individuals who have larger balances, where market gains tend to have more impact on the overall rate of growth.
For example, a month earlier, while the average account balance rose 0.8% for participants ages 25-34 with one to four years of tenure (and consistent participation since 2012), while the average account balance slipped 0.3% for participants ages 55-64 with 20-29 years of tenure.
The Employee Benefit Research Institute (EBRI), through the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, includes data provided by a wide variety of plan record keepers and, therefore, portrays the activity of several million participants in 401(k) plans of varying sizes, from very large corporations to small businesses, with a variety of investment options.
Drawing from that database, which 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.
