“Forgotten” 401(k) Accounts Amount to Nearly $1.35 Trillion of Assets, According to New White Paper from Capitalize
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Sum Represents 20% of the $6.7 Trillion Total Assets in 401(k) Plans
NEW YORK--(BUSINESS WIRE)-- Capitalize, the first independent platform to transfer retirement assets, today released the findings of its newest white paper, The True Cost of Forgotten 401(k) Accounts (2021). The white paper explains how these “forgotten accounts'' represent 401(k) savings that have been left behind by people who have changed jobs or terminated employment. According to the company’s research, as of May 2021 there are an estimated 24.3 million forgotten 401(k) accounts in the U.S. By the end of 2021, the company estimates that number will rise to almost 25 million forgotten accounts - with each account holding an average balance of approximately $55,000 and representing nearly $1.35 trillion of assets in total.
Over the past several months, Capitalize has analyzed a range of data sources and consulted with leading retirement policy experts, including the Center for Retirement Research, to formulate its report findings. Capitalize concluded that nearly 2.8 million 401(k) accounts are left behind by people who leave jobs each year, and that leaving behind a string of forgotten 401(k) accounts could cost an individual almost $700,000 in foregone retirement savings compared to consolidating in a single low-fee, optimally allocated retirement account. In aggregate, the company found that these forgotten 401(k) accounts could be costing retirement savers $116 billion annually from higher fees and lower investment returns.
“Unfortunately, there’s a structural problem that lies at the heart of the 401(k) market: we change jobs every few years, which means our connection to any given 401(k) account is fleeting. On average, we’ll change jobs twelve times in our lives - that could mean dealing with up to twelve different 401(k) accounts during the course of a career,” said Gaurav Sharma, CEO at Capitalize. “At Capitalize, we’re motivated to shine a light on this problem and believe policymakers, employers and private sector institutions have a role to play in reducing the friction associated with these transition points.”
Capitalize’s data also suggests that forgotten 401(k) accounts have the potential to impose a burden on employers, resulting in up to $700 million in fees paid to administer forgotten 401(k) accounts annually.
For more information on Capitalize and the results of the white paper, visit https://hicapitalize.com/resources/the-true-cost-of-forgotten-401ks/.
Capitalize is a New York-based fintech company that helps people quickly consolidate or “roll over” their old 401(k) accounts into a new or existing IRA - for free. Capitalize manages the entire 401(k) rollover process for users through an online alternative to the manual, paper-based process of transferring retirement accounts. Over time, Capitalize intends to help users manage all of their employer-sponsored and individual retirement accounts as they move throughout their career. www.hicapitalize.com
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