Study: Retirement savings edge up

A sluggish economy and a battered stock market are not stopping Americans from saving for retirement, according to a study by Fidelity Investments.

In fact, Americans are saving slightly more. And that is similar to findings from the 2001 dot-com bubble as well.

Fidelity, the country's top provider of workplace retirement plans, analyzed 16,723 401(k) plans representing 11.5 million participants and found that the average pretax employee contribution increased by 1.4 percent in the first half of 2007, to $3,187.

When looking at employees who contributed to an employer offered 401(k) or similar plan in both the first half of 2008 and 2007, the average pretax contribution increased by 7 percent to $3,512 in the first half of 2008.

The study didn't address reasons for the rise, but Fidelity spokesman Mike Shamrell said the company believes the “growing popularity of auto-increase functions” is a factor.

Auto-increase means a company automatically raises an employee's retirement contribution year-to-year or when a pay raise kicks in. Baby boomers who are beefing up their savings as they near retirement could be another reason.

Given the slowing economy, rising unemployment, high debt levels and declining home values, many people are afraid to spend.

“If they have money, they are … socking it away and their retirement account is one place for it,” said Shawn Jacobson, a certified financial planner and president of the Minnesota Financial Planning Association.

The nation's oft-cited negative savings rate, reported in the Bureau of Economic Analysis' monthly Personal Income and Outlays report, is now in positive territory.

Fidelity also looked at account balances and retirement plan withdrawals. Account-balance averages decreased from $69,200 in June 2007 to $64,000 in June 2008 – a 7.5 percent decline. The Standard & Poor's 500 is down almost 15 percent over the same period. However, the study points out that investors who kept socking funds away from each paycheck during that period found their account balances down less than 1 percent.

Surprisingly, the study also found that a smaller percentage of employees are initiating retirement plan loans this year.

Loans can ease a financial crunch, but are risky in a market that has rising unemployment because they must be paid back immediately in the event of a job loss.

Meanwhile, hardship withdrawals – taking money from a retirement plan to assist with medical bills, a foreclosure or college costs, for example – are up slightly. Yet fewer than 1 percent of workers withdraw funds from retirement for these purposes, Fidelity said.

The Associated Press contributed.