Americans held $7.3 trillion in 401(k) plans as of June 30, 2021, according to the Investment Company Institute. And the typical wealth held in an American family’s 401(k) has more than tripled since the late 1980s. This is a relatively new social benefit, created unintentionally by legislators.
Today, public and private sector employees use a 401(k) — or the nonprofit equivalent, a 403(b) — in order to plan for a comfortable retirement. Essentially, a 401(k) allows an employee to opt out of receiving a portion of their income, instead directing it to an account where the money can grow through investments. Unlike pensions, these retirement plans place more planning decisions and responsibility on the employees rather than the company.
Employers can contribute to an employee’s retirement savings by matching contributions to a 401(k) account up to an amount decided by the employer.
“Savings come from the top, so a lot of people don’t miss their money when it goes into their 401(k),” said Ted Benna, the man long credited with introducing the 401(k) to corporate America. . Forbes in 2021.
Whether or not this “top-down” savings yield small or large returns depends on the employee’s age, risk tolerance, and market conditions over the life of the account.
To illustrate how Americans’ retirement savings have evolved over the decades, Guideline has compiled a timeline of 401(k) evolution, drawing on research from the Employee Benefit Research Institute, the ‘Investment Company Institute and legislative documents.