Retirement Assets Account for a Third of Household Wealth

Saving for retirement is in vogue, and the numbers are there to prove it.

Retirement assets surpassed $51 trillion at the end of the second quarter of this year, accounting for a third of all household financial assets, according to recent data from the Investment Company Institute. Funds in individual retirement accounts grew the fastest, up nearly 10% from the first quarter, while assets in defined-contribution plans came in a close second, growing 8.7% to $15 trillion, and government defined-benefit plan assets increased 5%, to just over $10 trillion. The uptick is driven by economic factors — like the ever-rising cost of living driving more Americans to save in the first place — to policy changes at the federal level leading more employers to offer plans.

“It has become more on the employers, where they have to have the plan in place,” said Will Hackler, director of retirement plans at Integrated Partners. “Some employees are getting smarter and saying, ‘OK, you have a plan. That’s great, but how much are you matching? How much are you contributing toward it?’”

Mandate Nation

Part of what’s driving the surge in retirement savings this year is tax credits from the SECURE Act, which allows small businesses to get up to $16,500 in tax benefits when they set up retirement plans with automatic enrollment for their employees. The act was important in making retirement planning a dinner-table conversation, Hackler said, rather than something reserved for practiced investors. State-level mandates have also played a role, as more and more states are requiring employers that don’t offer their own plans to join state-run account IRA deferral programs. “A lot of companies are implementing 401(k) plans [with] mandated auto-enrollment. When they established plans in the past, we saw somewhere in the neighborhood of two-thirds of the employees would enroll,” Hackler said. “Now, with auto-enrollment, the numbers are over 90%.”

Other findings from the ICI report:

• Mutual funds remain the prominent vehicle for households’ individual account-based retirement savings, making up 46% of the assets held in IRAs and defined-contribution plans.
• Of the total $15 trillion in employer-sponsored DC plans, $10.8 trillion was in 401(k)s, with the rest split between other private-sector plans ($920 billion), 403(b) plans ($1.6 trillion), 457 plans ($585 billion) and the Federal Thrift Savings Plan ($1.2 trillion).

Hard-Earned Benefits. The benefits of retirement plans don’t come without a little work, though. Less than 6% of employers are applying for the tax credits that come with offering a plan, according to an Integrated Partners survey. Plan participants should also ensure they’ve named beneficiaries, Hackler said.

“[Retirement investors] start accumulating the money, but they never take the step of doing the beneficiary forms,” he said. “And because we’ve had this for a number of years, the rates of people filling it out are less and less … It becomes a big problem for the employer tracking people down.”