While 2020 proved to be a volatile one for U.S. stock markets, it also proved to be record-breaking—and that bodes well for the average 401(k) balance.
That’s right—after plunging into a bear market earlier in the year by the end of 2020, the S&P 500 climbed 16.3% to end the year at a record, while the NASDAQ surged 44% (its best year since 2009, according to Dow Jones), and the Russell 2000 managed to roughly double from its March 2020 low.
Similarly, in March the average 401(k) balance—as tracked by the non-partisan Employee Benefit Research Institute (EBRI)[i] was not off to a good start. That of younger (25-34), less tenured (1-4 years) workers was down 9.9% for the year, while that of older (age 55-64) workers with more than 20 years of tenure was off 10.5%.
But that, as they say, was then.[ii] Since then, despite considerable volatility, the average 401(k) balance of the younger, less tenured cohort ended 2020 29.2% higher than it began the year, while that of older, higher tenured workers (whose balances tend to be more influenced by market movement than contributions) closed the year 16.5% higher.
For the fourth quarter, the younger cohort rose 11.4%, while the older cohort’s average 401(k) balance closed up 8.2%. For December alone, those aged 25-34 with 1-4 years of tenure rose 3.6%—the average 401(k) balance of those aged 55-64 with more than 20 years of tenure ended the month 2.6% higher than they closed November.
[i] EBRI’s analysis, based on the organization’s huge 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.
[ii] Before the pandemic onslaught, in 2019—a year that the S&P 500 rose more than 28%, and the Dow gained 22% (the NASDAQ was up an even better 35%), the average 401(k) balance—buttressed not only by the markets, but by contributions—ended the year 44.9% higher for those workers aged 25-34 with less than 4 years of tenure, while workers with more than 20 years of tenure, aged 55-64, registered a 24.6% increase.