Is Your Retirement Piggy Bank Getting Fatter?

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The financial crisis ripped through the economy and nearly starved retirement accounts to death. For the second time in only a decade, millions of Americans felt the bitter taste of a stock market crash. The volatility caused some investors to panic and leave the market, but those who stayed are carrying around fatter piggy banks.

A diet of record returns and contributions is serving a wealth effect to retirement portfolios. The average 401(k) balance grew to $89,100 in the third quarter, up 6% from the same period last year, according to a new report from Fidelity, the nation’s largest 401(k) provider. That includes all participating employees at various stages of their careers. For employees in a 401(k) plan for 10 consecutive years, the average balance totaled $241,800, up 8% from a year earlier.

Staying invested — or even raising your contributions — in a declining market is one of the hardest aspects of investing. The emotional toll is so overwhelming that many investors sell low after buying high. However, given enough time, there has yet to be a stock market crash in the United States that has not fully recovered, followed by new record highs. As obvious as it sounds, investors need to remember that the market goes up and down, and to invest according to personal risk tolerance levels.

Fortunately, Americans appear to be focusing more on the long-term. Fidelity finds that Americans are contributing a record amount to their retirement accounts. The average 401(k) contribution reached $6,080 in the third quarter, up 1% over the same period last year. Meanwhile, the average contribution to a Fidelity IRA totaled $4,357, up 3% from a year earlier.

Investors continued to take a diversified approach to their 401(k) asset allocation, with an average of 55% of 401(k) assets in equities and more than 27% in blended investments, such as target date funds, and 18% in conservative investments, such as bonds.

“Continuing to contribute to your retirement savings account, even during times of economic volatility, is critical to reaching your retirement goals,” said James MacDonald, president of Workplace Investing at Fidelity, in a press release. “While we’re seeing record contribution rates across our 401(k) business, Fidelity recommends that individuals consistently save between 10-15% each year — regardless of market conditions — in order to generate the retirement income stream they’ll need to meet their financial needs in retirement.”

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