THE BEFORE PHOTO:

Investors shoulder 401(k) risk alone: Average balances rebound, but many not saving enough (Charles Stein, August 14, 2005, Boston Globe)

Fidelity Investments had some good news to report about 401(k) plans recently -- at least it sounded like good news.

The mutual fund giant found that in 2004 the average balance in the 401(k) accounts it services rose 10 percent. At $61,000, the average participant balance is at the highest level since 1999 when it reached $64,000. ''We are encouraged by the results," said Steve Deschenes, executive vice president of Fidelity's retirement business.

Call me a pessimist, but I found the results discouraging. A retirement account of $61,000 isn't going to pay for many rounds of golf in the golden years. Even worse, as a result of the difficult stock market in 2001 and 2002, the typical investor has less money saved today than he did six years ago.

Welcome to the ownership society.

For most Americans, the 401(k) plan is the private retirement system. More than half of all workers have access to a 401(k). Only one in six is covered by a traditional defined benefit pension plan. Alicia Munnell says those old-style pensions, with their guaranteed benefits, will continue to wither away.

''Employers don't want to bear the risks," said Munnell, a retirement specialist at Boston College and the author of a good book about 401(k) plans called ''Coming Up Short."

In her book, Munnell argues that 401(k) plans have the potential to provide for a decent retirement, but that often, the actual results are disappointing.

Inexperienced investors make too many mistakes, she found. They save too little, invest in the wrong mix of funds and, all too frequently, withdraw their money for nonretirement needs, especially when they change jobs.

Those wounds are largely self-inflicted.

All of which is why, of course, the Ownership Society will require your contribution--and should that of your employer--limit your investment options, not allow such withdrawals, and replace the guaranteed SS benefit that everyone knows they have coming regardless of their 401k.

MORE (David Cohen): The article OJ posted has the flavor of a pessimist looking for something to be pessistic about. Knowing the value of the average Fidelity 401(k) is only interesting if we know other things about the average 401(k) holder:

Mutual Funds: Sticking to Your Plan: When It Comes to Investing For Retirement, Putting Portfolios on Autopilot Is the Key to Success (Meg Richards, AP, 4/21/05)

A recent study of 5 million households conducted by the Vanguard Group found the ill effects of the bear market are slowly working their way out of long-term portfolios, with a majority of 401(k) and individual retirement account holders finally showing positive returns.

Vanguard analyzed the historic returns of 401(k) and IRA investors for the five years that ended in December of 2004, essentially taking a snapshot of how 5 million households fared in the aftermath of the bull market. According to the survey, more than 80 percent of 401(k) investors and 70 percent of IRA investors made gains or at least broke even over the last five years.

Investors in 401(k) or other employer-sponsored defined contribution plans saw median five-year returns of 4 percent, and IRA investors had median returns of 3.2 percent.

Of course, that means a fifth of 401(k) investors and almost a third of IRA investors are still licking their wounds, said Stephen Utkus, head of Vanguard's Center for Retirement Research. But overall, the results suggest retirement investors are "out of the woods," and committed to investing, Utkus said.

"Most people feel they're making money again, or at least they should," Utkus said. "I'm not sure, psychologically, if we did a poll, people would think they'd recovered. But the numbers show things are looking good."

Balances Climbing With Returns

In addition to improved returns, the study found a double-digit rise in average balances over the last five years. Investors in 401(k) plans saw their balances rise 12 percent, to $65,216 at the end of 2004, and average IRA account balances rose 13 percent to $52,627.

The Vanguard study looked at the returns of 2.6 million participants in employer-sponsored plans, and 2.7 million investors in its mutual fund IRA program. On average, 401(k) investors were slightly younger and made less money than IRA investors. The median income for 401(k) investors, with an average age of 44, was $84,000; the median income for IRA investors, with an average age of 50, was $89,000.

In other words, the average 401(k) holder has 15 or 20 years to go before retirement. These last years before retirement, which typically come after the mortgage is paid off and the kids have been educated, are the big years for retirement savings. What's really interesting is that IRA holders are older, make more, but have less in their IRA's. The article suggests that this is because people play with their IRA's more than their 401(k)'s, where people "set it and forget it."

Posted by Orrin Judd at August 14, 2005 6:52 AM