Record-High Retirement Balances Achieved as 401(k) Millionaires Experience a 20% Surge

Record-High Retirement Balances Achieved as 401(k) Millionaires Experience a 20% Surge

Retirement savers have reason to celebrate as the fourth quarter of 2023 ended on a high note. According to Fidelity Investments, retirement-account balances have reached their highest levels in two years, thanks to improved market conditions and consistent savings rates. The average 401(k) account balance stood at $118,600 in the fourth quarter, representing a 14% increase from the previous year. Similarly, the average IRA balance was $116,600, up 12% from a year ago, and the average 403(b) balance was $106,100, up 14% from a year ago.

Sharon Brovelli, the president of workplace investing at Fidelity Investments, expressed her satisfaction with this upward trend. She noted, “This past year ended on a high note for retirement savers. When it comes to matters like market stability and economic events, 2023 gave us the highs of the highs and the lows of the lows, but encouragingly, many retirement savers took the long view and stayed the course through it all, which is the type of commitment that can lead to a secure financial future.”

One group that particularly benefited from consistent long-term savings is Gen X workers. Fidelity reported that those who had invested in a 401(k) for 15 years straight saw their average balance surpass half a million dollars, reaching $501,000 by the end of 2023. This figure serves as a testament to the benefits of steadfast dedication to retirement planning. Gen X refers to individuals born between 1965 and 1980.

In addition to higher overall balances, the fourth quarter witnessed a significant surge in the number of 401(k) millionaires. Fidelity revealed that the number of people with at least $1 million in their 401(k) increased to 422,000, marking a 20% rise from the previous quarter. This increase is even more remarkable considering that the number of millionaires had dropped in the third quarter due to market conditions. Furthermore, the fourth quarter showed an 11.5% increase from the second quarter of 2023.

Michael Shamrell, the vice president of thought leadership at Fidelity’s workplace investing division, emphasized the positive attributes displayed by these 401(k) millionaires. He stated, “Americans love that millionaire title or that idea of a million dollars. The 401(k) millionaires demonstrate a lot of positive attributes. The average tenure of the millionaires is 26 years. That’s going back to 1998. They’ve seen the dot-com crash, 9/11, they’ve seen the market go up and down and they are examples of staying the course.” These individuals have weathered various economic storms and remained committed to their long-term retirement goals.

The savings rate for these millionaire investors was an impressive 26.6%, which includes both their personal investments and contributions from their employers. While Shamrell acknowledges that not everyone can save at such high rates, this statistic highlights the dedication and discipline exhibited by these individuals. Overall, the total 401(k) savings rate remained steady at 13.9%, including employee and employer contributions. This rate is consistent with the second and third quarters of 2023 and slightly higher than the fourth-quarter rate of the previous year, which stood at 13.7%.

Another noteworthy finding is that in 2023, 37% of workers increased their retirement-savings contribution rate, indicating a growing awareness of the importance of saving for retirement. With the Secure 2.0 Act provisions postponing required minimum distributions until age 73, most pre-retirees and retirees under age 70 maintained a savings mindset and refrained from withdrawing funds from their 401(k) plans. Only 20% of retirees aged 70 to 72 made 401(k) withdrawals, while 94% of retirees aged 73 and older withdrew funds from their accounts.

Interestingly, Gen Z investors, born between 1997 and 2012, displayed positive savings behaviors as well. The number of Roth IRA accounts increased by 50% in the fourth quarter of 2023 compared to the same period the previous year. Roth IRAs offer the advantage of after-tax contributions and tax-free withdrawals. Michael Shamrell commented on this trend, stating, “We continue to see positive savings behaviors across the board for Gen Z. The numbers are really positive. We need to keep an eye on them, as the oldest Gen Z members are approaching their late 20s when they might be thinking about getting married and buying a house. We want to keep an eye on them to see if the positive savings behavior continues.”

Overall, the fourth quarter of 2023 brought great news for retirement savers. With record-high balances in retirement accounts and a significant increase in the number of 401(k) millionaires, it is evident that consistent long-term savings can lead to a secure financial future. As individuals across generations demonstrate positive savings behaviors, it is encouraging to see a growing awareness and commitment to retirement planning.