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Is Winter Coming – or Over - for the Average 401(k) Balance?

Punxsutawney Phil’s shadow notwithstanding, it was – at least until the last week of the short month – a good one for US markets. But did the average 401(k) see its “shadow?”

In January, the average 401(k) balance — as tracked by the non-partisan Employee Benefit Research Institute (EBRI)[i] got off to a slow start after a robust 2020. The average 401(k) balance of the younger, less tenured cohort ended 2020 29.2% higher than it began the year, but rose just 0.3% in January, arguably because the balances of that cohort (ages 25-34, tenure of just 1-4 years) tend to be influenced more by contributions than by market movement.  As for those older, longer tenured workers (whose balances tend to be influenced more by market movement than contributions), while the average 401(k) closed the year 16.5% higher, it was down 0.6% for the first month of 2021.

But that, as they say, was then.  As for February 2021, despite a bit of downdraft at the end, the S&P 500 and the Dow climbed 2.6% and 3.2%, respectively – their third positive return month in the past four.  As for that average 401(k) balance – well, that of the younger, less-tenured cohort rose 2.6%, and that of the older, longer-tenured group gained 1.5%. 

Year-to-date (and it’s early yet), the average 401(k) of the younger cohort is up 2.9% and that of the older, more tenured cohort has regained positive territory – having now risen 0.8%. 

[i] EBRI’s analysis, based on the organization’s database of some 26 million 401(k) plan participants in more than 101,000 employer-sponsored 401(k) plans representing nearly $2 trillion in assets, is unique because it includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options.