Summary
Key Findings:
Policymakers, plan sponsors, and individual retirement savers are interested in understanding the wealth-building power of 401(k) plans, a key component of the US retirement system. Because the annual cross sections cover participants with a wide range of participation experience in 401(k) plans, meaningful analysis of the potential for 401(k) participants to accumulate retirement assets must examine the 401(k) plan accounts of participants who maintained accounts over all of the years being studied (consistent participants). For example, because of changing samples of providers, plans, and participants, changes in account balances for the entire database are not a reliable measure of how individual participants have fared. A consistent sample is necessary to accurately gauge changes, such as growth in account balances or changes in asset allocations, experienced by individual 401(k) plan participants over time. This paper provides an update of a longitudinal analysis of 401(k) plan participants drawn from the EBRI/ICI 401(k) database.
A few key insights emerge from looking at the 2.7 million consistent participants in the EBRI/ICI 401(k) database over the four-year period from year-end 2019 to year-end 2023.
- The average 401(k) plan account balance for consistent participants rose each year from year-end 2019 through year-end 2023—with the exception of 2022, a year of stock and bond market declines. Overall, the average account balance increased at a compound annual average growth rate of 15.8 percent from 2019 to 2023, rising from $82,274 to $148,092 at year-end 2023. The median 401(k) plan account balance for consistent participants followed a similar pattern and increased at a compound annual average growth rate of 25.9 percent over the period, to $58,898 at year-end 2023.
- Younger 401(k) participants or those with smaller year-end 2019 balances experienced higher percent growth in account balances compared with older participants or those with larger year-end 2019 balances. Three primary factors affect account balances: contributions, investment returns, and withdrawal and loan activity. The percent change in average 401(k) plan account balance of participants in their twenties was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 56.1 percent per year between year-end 2019 and year-end 2023.
- 401(k) participants tend to concentrate their accounts in equity securities. On average, at year-end 2023, more than 70 percent of consistent 401(k) participants’ assets were invested in equities—through equity funds, the equity portion of target date funds, the equity portion of non–target date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants.
- Consistent 401(k) participants’ exposure to equities was relatively unchanged between year-end 2019 and year-end 2023. At year-end 2019, 96.4 percent of consistent 401(k) plan participants held some equities (equity funds, target date funds, non–target date balanced funds, or company stock). This was little changed at year-end 2023, with 96.0 percent of consistent 401(k) plan participants holding equities.
- Consistent 401(k) participants’ exposure to target date funds was relatively unchanged between year-end 2019 and year-end 2023. At year-end 2019, 66.4 percent of consistent 401(k) participants held at least some target date fund investments in their 401(k) accounts, and that share was 65.3 percent at year-end 2023. Participants in their twenties had the highest use of target date funds in both periods.
- Most consistent 401(k) participants who were fully invested in target date funds at year-end 2019 remained fully invested in target date funds at year-end 2023. Among consistent 401(k) plan participants who were fully invested in target date funds at year-end 2019, more than 90 percent were fully invested in target date funds at year-end 2023. This high level of persistence in target date fund investing was observed across all participant age groups.