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Slow and steady wins the retirement race.

OLD AESOP really hit the nail on the head with his fable about Rabbit and Hare. How many different times in life do we see how this lesson applies? It only makes sense that it also offers insight into investment strategies. What you may not realize is that it applies equally well to savings strategies.

The Employee Benefit Research Institute (EBRI) recently published a report revealing actual data supporting Aesop's philosophy as it pertains to retirement saving. While the amount being saved and appropriate long-term investing are obviously important, the data suggests plan sponsors and public policy wonks might want to emphasize consistency in saving as well.

EBRI broke down its analysis between workers who had 401(k) accounts at the end of each year in the survey period (2010-2015) and all workers. There are 26.1 million 401(k) participants ("all workers") in the EBRI/ICI database. Of those, EBRI classified 7.3 million as "consistent participants." As you might expect, consistent participants tend to be older and have longer tenure compared to all workers. But that's not all.

Consistent participants are more likely to have larger account balances than the average worker. For example, while 41.3 percent of the entire database had balances of less than $10,000, only 12.5 percent of the consistent participants had small balances. On the other end of the spectrum, 10.2 percent of all workers had balances in excess of $200,000 compared to 22 percent of consistent participants.

More importantly, consistent participation appears to be correlated with significant growth in retirement assets. In 2010, the average balance of consistent participants was $74,983. By the end of 2015, it had grown 93.1 percent to $143,436. Contrast this with 21.6 percent growth over the same time period for all workers, whose assets grew from $60,329 in 2010 to $73,357 in 2015.

The median asset size numbers offer a starker contrast. The median for consistent participants experienced explosive growth of 127.8 percent, from $29,156 in 2010 to $66,412 in 2015. While asset size more than doubled for consistent participants, it actually lost 5.4 percent for all workers. The median balance for all workers shrank from $17,686 in 2010 to $16,732 in 2015.

Several factors can influence growth in participant retirement balances, including contribution levels, withdrawals/loans, and investment returns. Do any of these explain the difference between consistent participants and all workers? EBRI rules out investment returns when it says, "The asset allocation of the 7.3 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 26.1 million participants in the entire year-end 2015 EBRI/ICI 401(k) database."

That leaves either contributions or withdrawals, both of which are directly related to participation (i.e., you can't contribute if you don't participate, and failure to participate may be due to prematurely withdrawing funds).

There's plenty of evidence the 401(k) plan has made millionaires of everyday people, but only those people who consistently participate. Perhaps retirement plan policy should focus on keeping participants in the game because, as Aesop taught us, slow and steady wins the race.

By Christopher Carosa

Christopher Carosa, CTFA, is chief contributing editor for Fiduciary and author of the widely acclaimed book, "401 (k) Fiduciary Solutions."

22--Percentage of workers who consistently contribute to their 401 (k) plan with savings greater than $200,000

10.2--Percentage of all workers with 401 (k) savings greater than $200,000

91.3%--The average rise from 2010 to 2015 in retirement plan savings for workers who consistently contribute to their 401 (k) plan

21.6%--The average rise from 2010 to 2015 in retirement plan savings for all workers

All data per the EBRI Issue Brief ("What Does Consistent Participation in 401 (k) Plans Generate? Changes in 401 (k) Plan Account Balances, 2010-2015," Issue Brief, October 24, 2017, No.439)

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Author:Carosa, Christopher
Publication:Benefits PRO
Date:Dec 1, 2017
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