Data Highlights How Americans Are Contributing to 401(k)s, 529 College Savings Plans, and Health Savings Accounts
Dresher, PA–Ascensus, a leading technology and service provider that helps more than seven million Americans save for the future, has released its annual trends report, Inside America’s Savings Plans. The report highlights the leading trends across the retirement, college savings, and health savings account (HSA) industries.
Ascensus analyzed data across over 47,000 retirement plans, nearly four million 529 college savings accounts, and over 200,000 HSAs for which it provides recordkeeping and administrative services. The firm also highlighted HSA industry data from partner Devenir, a national leader in providing customized investment solutions for HSAs and the consumer-directed healthcare market. The following trends reflect how Americans are taking steps toward saving for their financial future.
Millennials are beginning to outpace older generations in terms of saving.
- Young employees are beginning to participate in their employer’s retirement plan early in their careers. Employees under age 25 represent just nine percent of savers on Ascensus’ platform. But data shows they are taking proactive steps to save as they advance in their career, with the average 401(k) account balances of savers ages 25-34 nearly double that of their under 25 cohorts. Employees ages 25-34 represent the largest percentage of retirement savers on the Ascensus retirement platform, at just over 26%. This suggests that over one quarter of retirement savers recognize the importance of starting to save early.
- Millennial parents are the driving force for new account growth in the 529 market. While millennial parents represent a smaller percentage of overall 529 account owners on the Ascensus platform, data suggests they have become a driving force for new account growth. In 2016, there were over 800,000 account owners between the ages of 25-34 on the Ascensus College Savings platform, up from just 450,000 in 2011.
- Millennials are building a foundation of health savings. HSA owners under age 25 and ages 25-34 represented 20% of all HSAs on the Ascensus platform in 2016.
Savers are making real progress toward their goals but are still facing an overall savings deficit.
- 401(k) account balances across all generations are lower than will likely be required to cover retirement goals. According to the U.S. Bureau of Labor Statistics, the mean American income in 2016 equaled $49,630.1 Savers nearing retirement at ages 45-54 in this compensation range had just over $25,000 saved as of 2016 year end.
- The overall average 529 account balance would only partially fund a post-secondary education. According to The College Board, the average annual cost of an in-state, public four-year university during the 2016-2017 academic year was just over $20,000; the average annual cost of a nonprofit, private four-year university was over $45,000.2 529 account owners on the Ascensus platform had an overall average of just $22,000 saved. However, this average has increased year over year for account owners of all age segments, suggesting that more families appreciate the importance of saving early and often. In addition, every dollar saved in a 529 account is one less that the beneficiary or family will have to borrow to fund a post-secondary education. While the average 529 balance might not cover all college costs, these savings vehicles can serve to reduce student loan debt in the future.
- Healthcare expenses continue to rise exponentially for retirement-age Americans, while average HSA balances increase gradually. The Employee Benefit Research Institute estimates that a man would need $127,000 and a woman would need $143,000 saved by age 65 for a 90% chance of covering healthcare costs in retirement. As of 2016 year end, savers ages 65+ had an average HSA balance of just $3,618 as compared to $3,422 in 2015. However, these retirement-age savers likely have additional savings accounts, IRAs, and funding sources that they plan to use for future healthcare expenses.
Account owners and plan sponsors alike are seeing the value in making saving automatic.
- Automatic features boost retirement plan participation, setting employees on the right track. Plans designed with automatic enrollment features see an average participation rate of 78 percent, nine percent higher than participation in plans without automatic enrollment. Plans that combine automatic enrollment and automatic increase have an average participation rate of 81 percent.
- Employees are leveraging payroll direct deposit capabilities to make the 529 investment process automatic and easier to manage. More employees are opting to establish payroll direct deposit into their 529 accounts, making small contributions with each payroll cycle. Employers are supporting this increased interest among employees, too. Ascensus has seen a 13 percent year-over-year increase in the number of employers making payroll direct deposits into 529 accounts.
- With automatic gifting contributions, the college savings process becomes a joint effort. Ascensus College Savings’ Ugift service enables 529 plan account owners to provide family and friends with a unique code to make gifting contributions online at their convenience. In the last five years, Ugift contributions have increased by over 500 percent, with $109,560,000 total Ugift contributions made in 2016.
- By pairing HSAs with high deductible health plans and enabling payroll direct deposit, employers are helping employees build a foundation of health savings. In 2016, 37 percent of HSA market growth was attributed to high deductible health plans offered by employers. Additionally, 46% of all dollars contributed to an HSA came from an employer. By offering payroll direct deposit into the accounts, employers are helping employees make contributing to health savings a habit. The average employee contributed a total of $1,786 to an HSA in 2016.
“Americans are making progress as they save for life’s most important milestones and they are embracing the available investment tools of 401(k)s, 529 plans, and HSAs,” said Bob Guillocheau, CEO and president of Ascensus. “We are thrilled to see the marked improvement across the board. Our main objective is to help Americans reach their savings goals and provide the necessary solutions to make their dreams a reality. We hope our data will offer financial institutions, financial advisors, and savings plan sponsors much-needed insight into how they can guide their clients and employees on a path to financial success.”
For additional trends and insights from Ascensus, visit http://pulse.ascensus.com.
1 National, State, Metropolitan, and Nonmetropolitan Area Occupational Employment and Wage Estimates, May 2016, U.S. Bureau of Labor Statistics.
2 Average Published Undergraduate Charges by Sector, 2016-17. Source: The College Board, Annual Survey of Colleges.
Ascensus helps more than 7 million Americans save for the future—retirement, college, and healthcare—through technology and service solutions. With more than 35 years of experience, the firm offers tailored solutions that meet the needs of banks, credit unions, states, governments, financial professionals, employers, and individuals. Ascensus supports approximately 50,000 retirement plans, more than 4 million 529 college savings accounts, and a growing number of ABLE savings accounts. It also administers more than 1.5 million IRAs and health savings accounts. For more information about Ascensus, visit www.ascensus.com.
Before investing in any 529 plan, you should consider whether your or the designated beneficiary’s home state offers a 529 plan that provides its taxpayers with state tax and other benefits that are only available through the home state’s 529 plan. You also should consult your financial, tax, or other advisor to learn more about how state-based benefits (or any limitations) would apply to your specific circumstances. You also may wish to contact directly your home state’s 529 plan(s), or any other 529 plan, to learn more about those plans’ features, benefits and limitations. Keep in mind that state-based benefits should be one of many appropriately weighted factors to be considered when making an investment decision.
Investment objectives, risks, charges, expenses, and other important information such as specific benefits, limitations, rules and guidance are included in a 529 plan’s offering statement; read and consider it carefully before investing.
When you invest in a 529 plan you are purchasing municipal securities whose value will vary with market conditions. Investment returns will vary depending upon the performance of the portfolios in the 529 plan you choose. Depending on market conditions, you could lose all or a portion of your money by investing in a 529 plan. Account owners assume all investment risks as well as responsibility for any federal and state tax consequences. Carefully read any disclosure statements and detailed information relative to your investment goals or needs, or consult with a tax advisor for their specific tax applications or consequences.