September’s Surge Stokes Average 401(k) Balances

In a month that has traditionally been the worst for U.S. stocks, how did average 401(k) balances fare?

Well, let’s just say that if this is traditionally a bad month for the markets (and it has been), 2017 looks to be an exception. On Friday, the S&P 500 and the Nasdaq Composite finished at all-time closing highs, while the Dow finished only 7.50 points below its record close on September 20.

September Surge

As for those average 401(k) balances, among younger (age 25-34), less tenured (1-4 years) workers, the average 401(k) account balance ended September 2.8% higher than it began the month, while even among older workers – those aged 55-64 with more than 20 years of tenure – the average 401(k) balance climbed 1.3% during September.

Nor was September an aberration. For the third quarter, the younger cohort cited above has enjoyed a 7.8% bump in its average 401(k) balance, while the older, more tenured segment has risen 3.7%. Year-to-date, the 25-34 cohort with 1-4 years of tenure is up nearly a third (31.2%), while the average 401(k) balance of those aged 55-64 with more than 20 years of tenure is 13.8% higher than it began the year.

That analysis, based on EBRI’s huge database of some 24 million 401(k) plan participants in 64,619 employer-sponsored 401(k) plans representing $1.536 trillion in assets, is unique because it includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes – from very large corporations to small businesses – with a variety of investment options.

Market Movers

Of course, younger workers have smaller balances, and that means that contribution flows, rather than market moves, generally have a larger effect on the rate of increase. On the other hand, older, higher tenured participants tend to have larger account balances, and the movement in average balance tends to be more influenced by market moves than contribution flows.

It’s a trend that has been consistent throughout 2017. In the second quarter, younger (age 25-34), less tenured (1-4 years) workers saw their average 401(k) account balance rise 21.7% year-to-date. Even among older workers – those aged 55-64 with more than 20 years of tenure – the average 401(k) balance was up nearly 10% (9.8%, to be precise) since January 1. And in the first quarter, EBRI found that the average account balance for younger (25-34), less tenured (1-4 years) workers surged by 13.4% (that’s still not a typo), while those aged 55-64 with more than 20 years of tenure gained 6.4%.

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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