The number of 401(k) millionaires in the US is on the rise, with a 25% increase in the first half of 2023, according to a report by Fidelity Investments. At the end of June, there were at least 378,000 people with Fidelity 401(k) plans who had at least $1 million in their accounts, compared to 299,000 at the end of 2022. The growth in account balances can be attributed to strong contribution rates and the rebounding stock market. However, it should be noted that boasting a seven-figure balance is still far from the norm, with the average 401(k) balance increasing to $112,400.
Young professionals are among the savers who have seen their savings soar, with Gen Z experiencing a 66% increase in average 401(k) balances compared to a year ago, and millennials seeing a 24.5% increase. This is in line with other reports that have found younger workers are saving more for retirement than their older counterparts. Starting young gives investments more time to grow and compound, according to Joanna Rotenberg, president of Personal Investing at Fidelity. The growth in retirement account balances is good news for savers, as the average saver’s goal retirement balance is estimated to be between $1.1 million and $1.9 million. However, it’s important to note that a million dollars may not provide the same lifestyle as a $100,000 annual salary. Despite the challenges faced in 2022, investors who stayed the course are now reaping the rewards, as Fidelity advises taking a long-term approach to saving and avoiding making changes based on short-term economic swings.
Double-Digit Growth in Retirement Account Balances Creates More 401(k) Millionaires
Investors faced a challenging 2022 with inflation, rising interest rates, and declines in the bond and equity markets. However, the tides have turned in 2023, as retirement account balances are experiencing double-digit growth. According to Fidelity Investments’ Q2 2023 retirement analysis, there has been a 25% increase in the number of 401(k) millionaires this year. By the end of June, at least 378,000 people with Fidelity 401(k) plans had accumulated $1 million or more in their accounts, compared to 299,000 at the end of 2022. Additionally, individual retirement account (IRA) millionaires also grew over the second quarter, reaching 349,104 by the end of June. However, it is important to note that Fidelity’s analysis may undercount retirement account millionaires, as individuals may contribute to both 401(k)s and IRAs or have accounts at other institutions.
Factors Contributing to Growth
Fidelity attributes the growth in retirement account balances to strong contribution rates and the rebounding stock market. The total contribution rate, which combines employee and employer contributions, was 13.9% for the second quarter, in line with the suggested rate of 15% by Fidelity. Baby boomers had the highest contribution rate, saving 16.6% of their salary over the quarter. The growth in account balances is good news for savers, especially young professionals. Gen Z witnessed a remarkable 66% increase in average 401(k) balances compared to a year ago, while millennials saw a 24.5% increase. Gen X and baby boomers also experienced growth, with average balances increasing by 14.5% and 6.3%, respectively, compared to a year ago.
The Importance of Starting Early
The growth in retirement savings among young professionals is particularly encouraging. Reports indicate that younger workers are saving more for retirement compared to their older counterparts at similar ages. Starting early gives investments more time to grow and compound. Joanna Rotenberg, president of Personal Investing at Fidelity, emphasized the significance of young investors’ leaps in retirement savings across both 401(k)s and IRAs. Contribution rates play a crucial role in the early stages of saving, as compounding growth over the years leads to substantial returns.
The Road to a Comfortable Retirement
The growth in retirement account balances is a relief after a challenging 2022. However, it is important to note that a million dollars is no longer as substantial as it once was. While it can still provide a comfortable retirement if managed effectively, individuals who have been earning $100,000 annually throughout their professional lives may be accustomed to a more lavish lifestyle than what a $1 million retirement can afford. Reports indicate that the average saver’s goal retirement balance is around $1.1 million, while others put the figure at $1.9 million, considering the increasing cost of living in the United States.
- Retirement account balances are experiencing double-digit growth in 2023, leading to a 25% increase in the number of 401(k) millionaires.
- Factors contributing to this growth include strong contribution rates and the rebounding stock market.
- Young professionals are seeing significant increases in their retirement savings, with Gen Z and millennials witnessing the highest growth rates.
- Starting early and maintaining a long-term approach to saving are crucial for building substantial retirement savings.
- While a million dollars can still provide a comfortable retirement, it may not be enough for individuals accustomed to a higher income and lifestyle.
In conclusion, the growth in retirement account balances is a positive sign for savers in 2023. However, it is important for individuals to continue saving and investing for the long-term to ensure a comfortable retirement. Starting early and maintaining a consistent contribution rate are key factors in building substantial retirement savings.