Over the last five decades, the 401(k) has revolutionized American retirement. This new account allowed workers to stash pretax savings and let them invest these nest eggs like any other funds. This innovation shifted both autonomy and the risk of market volatility to workers away from traditional pension plans, which have mostly disappeared. The result far outstrips the expectations for what was seen as a complementary investment vehicle rather than a firm foundation of financial planning. Today, 401(k)s offer a vast reservoir of funding for the market, but may not be enough to see the next generations through old age. Here’s the breakdown.
13 B.C.
Caesar Augustus instituted tax-funded pensions for Roman soldiers, 13 years of salary after 25 years of service. This replaced land grants in conquered territories. Pensions were mostly military specific until the mid-1800s, when some U.S. cities launched funds for teachers, police and firefighters. American Express created private pension funds in 1875. By the late 1880s, Germany started paying all citizens to retire at age 70. Nearly a century later, 45 percent of American private sector workers had pension plans.
The accidental nest egg
The Revenue Act of 1978 added section 401, paragraph (k) to the U.S. Internal Revenue Code, letting employees defer compensation from stock options and bonuses. The following year, benefits consultant Ted Benna realized it could be applied to retirement savings and designed such a product for a client bank. The bank refused it, unsure if it was legal. Eventually the plan took off elsewhere, fueled by tax breaks for employers whose matching funds incentivize voluntary contributions.
One-third of GDP
That’s how much cash Americans have in 401(k)s today, contributing $9 trillion to the investment economy. These accounts are the preferred option for about 70 million people. Unlike pensions, which take years to vest and are usually managed by employers, 401(k)s put workers at the wheel, to invest as they choose. Most defer to “target-date funds,” diversified portfolios built around an employee’s age and retirement goals. About half have no idea where their money is invested.
Rainy day ‘leakage’
401(k) accounts have become an irresistible resource in tough times. A record 4.8 percent of account holders took hardship withdrawals from 401(k)s in 2024, up from about 2 percent before 2020; those under 59.5 years old incurred a 10-percent tax to do so. According to The Wall Street Journal, Congress has increasingly made it easier for people to dig into these funds, including a tax-free year during the Covid-19 pandemic under the CARES Act.
57 percent lagging
More than half of Americans feel behind on their retirement savings, per a 2024 survey. Fewer than 3 percent of 401(k) accounts are worth at least $1 million, according to Fidelity Investments; the country’s largest 401(k) manager also reported average contributions of $8,800 in 2024, far below that year’s $23,000 cap ($30,500 for people over 50). Some say the 401(k) disproportionately benefits upper-income investors, leaving most unprepared to retire. This crisis has garnered hints of bipartisan cooperation but little government action.
Gen Z > Gen X
Zoomers now have three times more assets in 401(k)s than Gen Xers did in 1989, per the Investment Company Institute. Americans in their 50s — the age when balances usually peak — have a median balance of $249,136, according to financial services firm Empower. More than half of baby boomers with Fidelity accounts chose where to put their money in 2023, compared to a quarter of millennials.
24.9 billion salaries misplaced
That’s how many average salaries — $1.7 trillion — were sitting in forgotten 401(k)s as of 2023, a quarter of all such accounts. Most result when an employee changes jobs and neglects to “roll over” their balance into a new IRA. The Department of Labor has launched a searchable database to find lost savings. The AARP recommends workers consolidate accounts when switching jobs, “just as you would clean out your desk.” Per the Journal, about a third of job changers choose to liquidate their 401(k)s instead.
This story appears in the October 2025 issue of Deseret Magazine. Learn more about how to subscribe.