Retirement Investors Give Bullish Signal

BOSTON (TheStreet) -- Fidelity Investments' retirement investors put away more money in their 401(k) plans for the first time in three quarters, signaling greater confidence in the economy.

Boston-based Fidelity's average account balance rose 13.5% to $53,900 in the second quarter from three months earlier. The portion of the fund company's 11.2 million retirement-plan participants who increased the amount they socked away rose after decreases that stretched back to mid-2008. The share of active participants who stopped contributing during the second quarter was 1.3%, down from 2.2% in the previous two quarters and in line with the historical average.

"Not only do we hear talk that sounds a little more optimistic, we are witnessing behaviors that also demonstrate a level of optimism and a commitment to the importance of retirement savings," says Michael Doshier, vice president of marketing for Fidelity's Workplace Investing Group.

Although the portion of workers in their 20s who participate in workplace savings plans has increased in recent years, the majority still doesn't contribute. Participation improves in older age groups, but other factors hinder retirement savings.

Workers in their 30s and 40s showed participation rates of more than 65% and an average elective deferral rate of 7.7%. However, the frequency and the prevalence of taking out loans against savings increased. Nearly one in four workers in this age group has one or more outstanding loans and nearly 31% took out a loan two years in a row.

So-called pre-retirees, ages 50 and up, have a 70% participation rate and contribute an average of 10% of their earnings to a retirement plan. Poor asset allocation, however, has proven problematic as more than a quarter either have no exposure to equities or hold 100% stocks in their 401(k) plan. More than one in 10 pre-retirees hold no equities in their 401(k) plan, a strategy that can result in lower returns. At the other end of the spectrum, 14.2% of pre-retirees are totally invested in equities, an overly aggressive approach that leaves them vulnerable to bear markets.