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To my parents' generation, financial security meant working for the same company your whole life. Then when you turned 65, they gave you a gold watch, and once a month you trundled out to the mailbox to get your lousy pension check. The size of the check never changed, and you hoped like hell that the company you devoted your life to didn't go broke. And if you were the breadwinner of the family and you died, good luck to your heirs.

In 1978, all that began to change. That was the year that the 401k program came into being and it was both revolutionary and evolutionary. It took the responsibility for providing for one’s retirement finances out of the hands of the employer and put it in the hands of the employee. For some, this was fantastic news, and for others it was a non-event.

A recent study by the University of Texas documents how dramatically different the program impacts individual account owners. The Texas study took data from 401k participants between the ages of 50 and 60 and found some revealing results; The average account balance for this group was $843,742, but the median figure was only $158,272.

Next the researchers analyzed the investment choices of the 50 to 60 age group. The discovered that 78% of the accounts with larger than average balances were concentrated in stock mutual funds, predominantly index mutual funds. Those accounts with balances below the median had a higher portion of their assets in target date funds. Target date funds hold a mix of stocks and bonds and as the owner ages, the stock portion declines and the bond portion increases.

There are two factors that contribute to the growth of a 401k account. The first is the employees payroll contribution. Next are the investment decisions made by the account owner. And here the employer has not been totally removed from the picture. They have the responsibility for determining the mutual funds listed in the plan’s investment menu. While it is impossible to determine the exact impact the investment choices have on asset growth, both parties, employers and employees, must do their homework in order to optimize the outcome.

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