Opinion: 401(k) participants flourished in 2020 with a soaring stock market

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401(k) participants flourished in 2020 with a soaring stock market

It is always fun to look at Vanguard’s most recent edition of “How America Saves.” And it is particularly interesting to get the numbers for 2020 — a year when COVID-19 shut down the economy and the stock market soared.

Everything we have seen would suggest a positive report because people with 401s were generally not the ones laid off; the young and the low paid took the hit. And, indeed, the Vanguard report shows a substantial increase in median and mean balances. Median balances rose from $25,775 to $33,472, and mean balances from $106,478 to $129,157. The big difference between the median and the average is due to a small number of accounts that have really big balances. Average balances are more typical of long-tenured, more affluent participants, while the median balance represents the typical participant.

Retirement accounts appear to serve as a meaningful source of saving only for the upper two quintiles of the income distribution.

 

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