Industry Impact on 401(k) Balances Highlighted in Fidelity Data

Fidelity's data highlights how industries impact 401(k) balances, revealing varied savings outcomes across sectors. This insight helps workers gauge their retirement savings progress relative to peers in different industries.

Key Highlights: 

During the first quarter, retirement account balances hit their highest levels since Q4 2021, as reported by Fidelity. 

Understanding industry peers' savings progress can aid workers in assessing their own savings success

Boston Brand Media Brings you to assess your readiness for retirement, comparing your 401(k) balance against other savers' progress can provide valuable insights. Recent data from Fidelity reveals the average 401(k) balance among investors on their platform was $125,900 in the first quarter.

Breaking down the averages by age groups, Fidelity reported the following:

• Baby boomers (born 1946-1964) averaged $241,200 in their 401(k) balances.
• Gen X (born 1965-1980) averaged $178,500.
• Millennials (born 1981-1996) averaged $59,800.
• Gen Z (born 1997 onwards) averaged $11,300.

These figures highlight significant variations in retirement savings across different age groups, underscoring the importance of understanding how your savings stack up relative to your peers in your field and age cohort.

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Comparing 401(k) balances by industry can provide savers with a more relevant benchmark to assess their retirement preparedness against their peers. Fidelity has compiled industry-specific data to help companies understand their employees' savings behaviors more effectively. Mike Shamrell, vice president of thought leadership for workplace investing at Fidelity, highlighted that many companies view their 401(k) plans as critical tools in attracting talent.

Shamrell noted, "We still have a lot of companies that are really in a war for talent. They want to make sure that what they’re doing is aligned with the companies that they’re competing with for talent."

This approach underscores the importance of understanding how 401(k) savings compare within one's industry, as it reflects not only individual progress but also how competitive a company's benefits package is in attracting and retaining employees. By leveraging industry-specific data, employees and employers alike can gain insights into where their retirement savings stand relative to industry norms, helping them make informed decisions about financial planning and employee benefits strategies.

Mike Shamrell from Fidelity pointed out that average 401(k) balances tend to be higher in industries where salaries are generally higher. Here are some key insights based on industry-specific data:

1. Legal services leads with an average 401(k) balance of $306,400.
2. The petrochemical industry follows closely with $255,500.
3. Energy production and distribution ranks third with an average balance of $214,400.

Conversely, industries with lower average 401(k) balances include:

1. Retail trade, averaging $51,200.
2. Health care (excluding physicians), averaging $66,600.
3. Real estate, averaging $70,700.

These figures illustrate significant disparities in retirement savings across different industries, reflecting variations in compensation levels and employer contributions to retirement plans. Understanding these benchmarks can help individuals and companies within these sectors assess their retirement readiness and optimize their financial planning strategies accordingly.

What Experts Recommend Focusing on Instead

Experts often suggest that a more meaningful metric for assessing workers' retirement savings success is their  total savings rate, rather than just their account balances. Fidelity, for instance, advises individuals to target saving 15% of their pre-tax income, inclusive of both employee and employer contributions, towards retirement.

According to Fidelity, their 401(k) participants have shown an average total savings rate of 14.2%. This figure includes contributions from both employees and employers, marking it as one of the closest measures to Fidelity's recommended savings rate they have observed.

This emphasis on the total savings rate provides a clearer picture of how effectively individuals are preparing for retirement, taking into account both their personal contributions and the support provided by their employers. It underscores the importance of consistent saving habits and effective retirement planning strategies to achieve financial security in retirement.

Experts often advise workers not to get overly fixated on the size of their retirement nest egg target, which surveys like Northwestern Mutual suggest can lead people to believe they need $1.46 million for a comfortable retirement. Instead, the focus should be on maintaining a consistently high savings rate.

According to data, industries with the highest average total savings rates include:

• Pharmaceuticals: 19.7%
• Petrochemicals: 19.1%
• Airlines: 18.4%

Conversely, industries with the lowest average total savings rates include:

• Retail trade: 10.4%
• Health care (excluding physicians): 10.9%
• Construction and scientific and technical sectors: 12.3% each

These figures highlight significant variations in savings behavior across different industries, reflecting differing financial priorities and employer contributions to retirement plans. Maintaining a robust savings rate remains crucial for building a secure retirement regardless of industry, emphasizing the importance of consistent financial planning and saving habits throughout one's career.

Areas Where Employer Assistance Is Most Generous

Achieving a high total savings rate often relies on substantial contributions from employers. According to Fidelity, the overall average employer contribution rate across their 401(k) plans is 4.8%.

Industries with the highest employer contribution rates include:

• Petrochemicals: 8.2%
• Pharmaceuticals and airlines: 7.8% each

In contrast, industries with the lowest employer contribution rates include:

• Health care (excluding physicians): 2.9%
• Retail trade: 3%
• Scientific and technical: 3.1%

These disparities underscore how employer contributions significantly impact overall retirement savings rates within different sectors.

It's worth noting that taking out a 401(k) loan can detract from retirement savings progress. Fidelity reports that 17.8% of their plan participants have taken out such loans, potentially impacting their long-term financial security in retirement.

For questions or comments write to writers@bostonbrandmedia.com

Source: CNBC