After taking a hit during the financial crisis, 401(k) balances have come roaring back. Nationwide, the median 401(k) balance rose by 25% between 2008 and 2011, according to a study conducted by FutureAdvisor, a financial advisory start-up that allows people to personalize portfolio recommendations.
Of course, 401(k) balances and growth were not even across all states. FutureAdvisor provided 24/7 Wall St. with the median 401(k) balance for each state in 2011. But because median incomes in each state would alter the results of the balances, 24/7 Wall St. looked at the balances of each state relative to its median household income. These are the 10 states with the highest and lowest balances relative to income.
The states with high 401(k) balances relative to income fall into several different categories, with some overlap. Some of the states had higher median incomes than the rest of the country, which gave people more disposable income to invest in 401(k) plans. For instance, Delaware had a median income of $58,814, the ninth highest of all states, and ranked fifth highest in 401(k) balance as a portion of income. On the other end, New Mexico had a median income of $41,963, the eighth lowest among all states, and ranked seventh lowest in 401(k) balance as a proportion of income.
But not every state with high median 401(k) balances had high incomes and vice versa — seven of the 10 states that had the best 401(k) balance relative to income had median incomes below the national rate. For instance, Mississippi had the 10th-highest 401(k) balance as a proportion of income, despite having the lowest median income in 2011. Meanwhile, five of the 10 states that had the worst 401(k) savings had higher median incomes than the United States as a whole. For example, Alaska, which had a median income of $67,825, the second highest in the country, had the lowest 401(k) balance as a proportion of income.
States with low debt generally had better relative median 401(k) balances, since more money could go to funding for retirement. Seven of the 10 states with the highest median balances were in the bottom half in terms of average debt divided by income per capita. Debt played an even bigger role among the states with the lowest relative 401(k) balances. Eight of those 10 states were in the top half in terms of average debt divided by income per capita, including five in the top 10.
A large factor in 401(k) balances was growth between 2008 and 2011. Five of the 10 states with the highest balance relative to income were among the top 10 in terms of 401(k) growth in that specific time frame. Four of the states were in the top five. For instance, Mississippi’s median 401(k) balance grew by 84% during that time frame, more than any other state. On the flip side, growth was generally more sluggish among the states at the bottom of our list. For instance, Alaska’s median 401(k) only grew by less than 1% between 2008 and 2011, the lowest of all states.
FutureAdvisor provided data on median 401(k) balances for each year from 2008 to 2011, and provided plans’ growth during that time frame. We also looked at data from CreditKarma on the state’s average debt. CreditKarma broke this debt further to credit card debt, mortgage debt and automobile debt. Finally, we relied on data from the U.S. Department of Labor for unemployment figures and the U.S. Census Bureau for median household income.
These are the 10 states most (and least) prepared for retirement.