401(k) balances at record high

Should I dip into my 401(k)?
Should I dip into my 401(k)?

401(k) balances reached record highs in 2012, as a strong stock market and increased contributions helped retirement savers continue to recover from recession losses.

Fidelity Investment's average 401(k) balance hit $77,300 at the end of 2012 -- up nearly 12% from $69,100 in 2011, according to a report released Thursday by Fidelity, the country's largest provider representing 12 million U.S. workers.

The balance also tops the third quarter's average balance of $75,900, the highest recorded since 2000.

"It is very encouraging to see that the retirement balances have completely bounced back from where they were during the height of the downturn and that participants have continued to have faith in the 401(k)," said Jeanne Thompson, Fidelity's vice president for retirement insights.

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Stock market gains accounted for about two thirds of the increase, Fidelity said, while one third came from workers increasing the 401(k) contributions taken out of paychecks.

In 2012, all three major U.S. stock market indexes rose, recording gains between 7% and 16%.

Last year, participants in Fidelity plans socked away an average of $5,890, or 8% of their annual salaries -- up from $5,500 five years ago. And employers pitched in an extra $3,430 on average, with about 82% of employees receiving some sort of employer match.

With traditional pensions becoming obsolete, especially for younger workers, the 401(k) continues to grow in importance, Thompson said.

"For many people, the 401(k) is their primary retirement savings vehicle," she said.

Across the industry, 401(k) balances benefited from strong returns and increased contributions, said Jack VanDerhei, research director at the nonprofit Employee Benefit Research Institute.

"While there are obviously some individuals who have done much better than others, it's certainly across the board," he said.

Employee contribution rates have continued to rise in recent years, spurred by automatic enrollment and escalation programs made popular by the Pension Protection Act of 2006, VanDerhei said.

Under the program at many companies, workers are automatically enrolled into 401(k) plans, where typically a set amount is taken from each paycheck. The amount increases each year, unless employees choose to opt out.

"Thus far, very few people who have been put in it have opted out," VanDerhei said.

Related: Guide to your 401(k)

As of June 2012, more than 94% of 401(k) participants had a higher account balance then they had prior to the 2007 stock market plunge, VanDerhei said, citing his analysis of 24 million 401(k) participants.