“It Pays to Stick with Your Retirement Plan.”

This morning I came across a wonderful article on the CNBC personal financial planning website, written by staff member Tom Anderson, on the subject of building wealth in a 401(k) plan. The title is,
“Get a 654 percent return by sticking with your 401(k)“

Here are the important highlights:

A new analysis by Fidelity Investments found that investors who have been in their company’s 401(k) plan for 15 years straight saw their average balance grow from $43,900 in 2001 to $331,200 as of the end of September 2016. That works out to a 654 percent return over 15 years or an annualized 14 percent. By comparison, the S&P 500 returned an annualized 7 percent over the same period. “It shows the benefits of setting a plan and keeping with it.”

Fidelity’s analysis is based on more than 22,000 corporate retirement plans with 14.5 million participants.

Not all those gains came from the stock market. Roughly 55 percent of the returns in the 15-year club can be attributed to market performance – fascinating! The rest came from plan contributions from employees and their employers. The average employer matching contribution at a large company 401(k) plan is 50 cents on the dollar on the first 6 percent of pay, according to the Vanguard Group. One in 4 employees misses out on receiving the full company match by not saving enough — leaving an average of $1,336 on the table each year.

Not every employee is fortunate enough to have a workplace 401(k) plan or stay in one for 15 years. More than half of American workers — roughly 55 million — don’t have access to a retirement savings plan on the job. Plus, only 17.4 percent of American workers have been with the same employer for more than 15 years, according to the Bureau of Labor Statistics.

“People who have been in the same 401(k) for 15 years are an elite group. They are the aristocrats of the labor market,” said Anthony Webb, research director of the Retirement Equity Lab at the New School’s Schwartz Center for Economic Policy Analysis.

The markets have been acting poorly of late, and there is enough reason to disengage. Yet this article serves as a reminder that the best way to accumulate wealth inside a tax-efficient retirement plan is to establish a prudent and balanced investment strategy, stay with it through all market cycles, and feed it – through dollar cost averaging, annually increasing your contributions along with inflation and wage increases, and grabbing 100% of the employer match. Feel free to call us for a full 401(k) strategy review.