The surging stock market boosted the
average 401 (k) to another high in 2013. But many young and low-come workers
are not keeping the cash in their accounts.
The stock marketed boosted the average 401(k) balance to a
record $89,300 at the end of the year, up 15.5% from $77,300 in 2012, according
to research by Fidelity Investments.
People who are near retirement, ages 55 to 64 years old, saw
their accounts grow to an average balance of $165,200 from $143,300 in 2012,
Fidelity said. Workers with both a 401(k) plan and Individual Retirement
Account managed by Fidelity had larger accounts, with an average balance of
$261,400, up from $225,600 in 2012.
Even a balance of $261,000 is hardly enough for a comfortable
retirement. A 2013 study by the Employee Benefit Research Institute found that nearly half of workers had less than $10,000 saved. Part of the problem: Many
workers are putting their retirement savings at risk when switching or leaving
jobs by not rolling over the accounts to 401(k)s or IRAs.
Of the roughly 800,000 workerswith Fidelity accounts who
left a job in the first nine months of 2013, 35% cashed out their 401(k)
balances, as opposed to leaving the money in their former employer's plan or
rolling it into a new 401(k) or IRA.
These cash-out balances averaged $15,500, and were common among
young and low-income workers. More than 40% of participants between the ages of
20 and 39 and 50% of workers earning between $20,000 and $30,000 had opted for
the cash.
Unless workers use the funds to open an IRA account within 60days, they get hit with significant taxes and a 10% penalty.
"Everyone's personal financial situation is different and
there are times when a person must have access to cash," James MacDonald,
president of Workplace Investing at Fidelity, said in a statement.