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As of June 30, 2021, Americans held $7.3 trillion in 401(k) plans. Investment Company Institute. The typical wealth held by a U.S. family’s 401(k) is more than . three times Since the late 1980s. With the widespread adoption of 401(k) plans, you might be surprised that they are a relatively new employee benefit and one that lawmakers unknowingly created.
Today, both public and private sector employees use a 401(k) or the nonprofit equivalent of a 403(b) to plan for a comfortable retirement. Essentially, a 401(k) allows employees to forgo receiving a portion of their income and instead move it into an account where they can increase the funds through investments. Unlike pensions, these retirement plans place more planning decisions and responsibilities on the employee than the company.
Employers can contribute to an employee’s retirement savings by matching 401(k) contributions to an employer-determined amount.
“The savings are the highest, so a lot of people don’t miss out on their money when it goes into their 401(k),” Ted Benna, a longtime creditor for bringing 401(k)s to corporate America, told Reuters Forbes 2021.
Whether savings “from the ground up” yields 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 has evolved over the decades, guide Compiled a timeline of 401(k) evolution, drawing on Employee Welfare InstituteThis Investment Company Instituteand legislative records.
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