Nevin's Data "Points"

   Every few months another headline pops up lamenting the inadequacy of the “average” 401(k) balance. The implication is usually the same: Americans aren’t saving enough, retirement is in peril, and the numbers prove it. The problem isn’t that the math is wrong. The problem is that the math is answering the wrong question. I’ve noted before how misleading averages can be — and, frankly, medians aren’t a lot better when it comes to tracking 401(k) savings. The issue isn’t the arithmetic; it’s the reality of how people actually work and save. Because people change jobs. And when they change jobs, they change 401(k)s — and 401(k) providers. They might leave the balance behind with the old employer (something that happens a lot). They might roll it over to an IRA (which probably happens a lot as well), in which case it disappears from 401(k) tracking altogether. Or they might roll it into their new employer’s plan — though that still seems to be the minority outcome. Regardless o...

   Last week, I shared a   list of things that make me “mad as hell”   — things that those in our industry generate, promote and often share as fact without any application of common sense, and no apparent appreciation for the damage done by their complicity in sharing such nonsense.  Here’s the rest of the list:  Reporting on average  —  well, anything (see  Why an Average 401(k) Balance Doesn't 'Mean' Much ) . You name it, if it involves numbers from widely varied sources, individuals, or different time periods, somebody in this industry will report it as an arithmetic average. This industry continues to insist on reporting average 401(k) balances, average fees, average estimates on retirement needs, and more recently “forgotten” average account balances. I get it. Averages are widely considered to be a middle of the pack assessment of reality. But that’s only true when you are averaging things that are similar, and more importantly real. I...

   There were some   good headlines   about 401(k)s last week — but the numbers underneath those “averages” were even better. Those headlines — reporting on  Fidelity’s Building Financial Futures: Q1 2025 report  — noted that savings rates hit a record high in Q1, driven by a milestone employee contribution rate of 9.5%, and an employer contribution rate of 4.8% — the highest level to date in that survey. Those types of increases have previously been noted in surveys by the Plan Sponsor Council of America, but this one commented that the combined savings rate of 14.3% is the closest it’s ever been to Fidelity's suggested savings rate of 15%.  That said, when you look inside those averages — Fidelity noted that Boomers [i]  actually had a total savings rate of 17.2%, buoyed by a  12%  employee savings rate, while Gen Xers had a 15.4% total savings rate (a  10.3%  employee savings rate). Gen Z’s 7.3% employee savings rate and Mil...

Nobody likes to be thought of as “average” – so why do people spend so much time worrying about the “average” 401(k) balance? These averages are reported with some regularity by any number of providers (based on the records for which they have access), and sometimes by academics drawn from government databases. 1 The short (and less cynical) answer to “why” is most likely that the math is “easy.” You simply take the total assets (from whatever recordkeeper/plan balances you have), divide it by the number of participants in that group, and “voila” – you have an average. 2 Now, when you stop and think about it (and many don’t), you realize that doing so adds together the balances of individuals in widely different circumstances of age and tenure – everything from those just entering the workforce (and who have relatively negligible 401(k) balances) with those who may have been saving for decades. It can also, in the case of government databases, add together those that...

In recent days, we’ve gotten updates on average savings rates and 401(k) balances, and while for the very most part the reports have been positive and “directionally accurate,” I’ve always taken such findings with a grain of salt. Not so many in the press. Indeed, the press coverage of those reports is generally quite negative, in the “how can people possibly retire on those small amounts” vein. Here are four things to keep in mind about those “average” 401(k) balances. Your average 401(k) balance may not be based on very many plans or participants. Some reports of plan design trends and average balances may do so based on a relatively small customer base, and/or homogenous plan size. That doesn’t mean the results are without value – but let’s face it, sample size matters in discerning trends. The average 401(k) balance in a universe of 50 plans is surely less instructive than one that is a hundred times that size. In all surveys, sample size matters. And when it comes to avera...

Ours is a business where surveys and trends often shape not only perceptions, but policy — though sometimes the conclusions drawn, and even the premise itself — make me go “huh?” Here’s a sampling: Citing a drop in deferral rates as a failure of automatic enrollment. Every so often a personal finance writer will stumble across an industry survey that shows that the average deferral rate in 401(k) plans has declined, a problem they attribute to automatic enrollment adoption. We all know what is going on here ; individuals who take the time to fill out a form and enroll in the plan manually tend to defer at a higher rate than do those who are automatically enrolled, the latter typically at a modest 3% rate. On the other hand, automatic enrollment has a dramatic impact on raising the participation rate. The rest is just math — more people, saving at lower rates = a lower average deferral rate. Now, those individuals automatically enrolled at a 3% rate may draw down the average de...