401(k)s on the rebound - they're no longer '201(k)s'

In late 2008 and early 2009, many investors jokingly referred to their 401(k)s as "201(k)s" because their account balances had fallen so drastically. However, a recent survey by Fidelity Investments says that account balances are at their highest levels since the company began tracking account values in 1998.

Fidelity recently reported that the average 401(k) retirement plan balance rose to $74,900 as of March 31, 2011. That represents an increase of 12 percent from March 31, 2010. The company also reported that participants in its 401(k) plans saved an average of 8.2 percent of their salaries.

Vanguard reported figures that were very similar. The average balance in its 401(k) accounts was just over $79,000 at the end of 2010. Again, this represented the highest balance since Vanguard began tracking balances in 1999.

So, the fact that account balances are rising is good news but account balances and annual contributions are still at very low levels. An 8 percent contribution might sound reasonable, but depending on the employee's age and the amount he or she has already saved, contributions of 10 to 20 percent of income are generally required. Also, the guideline for a safe withdrawal rate is generally 4 to 5 percent. If an employee is retiring with a 401(k) account balance of $75,000, the amount they can safely withdraw each year is just $3,000 to $3,750.

Fortunately, Fidelity points out that the $74,900 figure is an average for all participants so it includes the balance of employees in their 20s as well as their 60s. Older participants hopefully have higher balances. Fidelity reports that employees who are 55 years old or older and who have participated in their company plans for 10 year or more have balances that average $233,800. Definitely an improvement, but even these individuals should not be withdrawing more than $11,600 from their accounts if they want their money to last throughout their retirement.