401(k) millionaire ranks grew 11.5% in 2023. They are ‘poster children for staying the course,’ expert says
Mar 13, 2024
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Retirement 401(k)
account balances bounced back in 2023 to the highest level in nearly two years,
according to Fidelity’s recent report.
·
Despite persistent
inflation, more than one-third of workers increased their retirement savings
contribution rate.
·
The number of 401(k)
millionaires also rose more than 10%.
In a year that defied most economists’ expectations, retirement savers reaped
the benefits.
Retirement account
balances, which took a sharp nosedive in 2022 due to market volatility, have
now started to bounce back, according to the latest data from Fidelity
Investments, the nation’s largest provider of 401(k) savings plans. The
financial services firm handles more than 45 million retirement accounts total.
The average 401(k) balance ended 2023 up 14% from a
year earlier to $118,600, Fidelity found.
The average individual retirement account balance
also gained 12% year over year to $116,600 in the fourth quarter of 2023.
“This past year ended on a high note for retirement savers,” said Sharon
Brovelli, president of workplace investing at Fidelity Investments.
Positive savings
behaviors were key to realizing better outcomes, added Mike Shamrell,
Fidelity’s vice president of thought leadership.
A great year for the
major indexes also helped. The Nasdaq soared
43% in 2023, while the S&P 500 notched
a 24% annual gain and the Dow Jones
Industrial Average rose
more than 13%.
Number of 401(k) millionaires jumps 11.5%
At the end of 2023,
signs that inflation was
cooling were not only good news for the economy, but they were also good news
for stocks. After the S&P 500 closed
out 2023 with a nine-week win streak, the number of Fidelity 401(k) plans with
a balance of $1 million or more increased 20% from the third quarter.
Year over year, the
number of 401(k) millionaires rose 11.5%.
“These are the poster
children of staying the course and taking a long-term approach,” Shamrell said.
Overall, more than
one-third of retirement savers increased their retirement savings
contributions, Fidelity found. The average 401(k) contribution rate, including
employer and employee contributions, now stands at 13.9%, just below Fidelity’s
suggested savings rate of 15%.
More
retirement savers are borrowing from their 401(k)
Still, savers also tapped
their accounts to free up cash. The percentage of workers who
took a loan from their 401(k), including for hardship reasons, ticked up to
8.9%, from 7.8% at the end of 2022.
Federal law allows workers
to borrow up to 50% of their account balance, or
$50,000, whichever is less. However many financial experts similarly
advise against tapping a 401(k) before exhausting all other alternatives since
you’ll also be forfeiting the power of compound interest.
At the same time, many
households are also leaning heavily on credit
cards to make ends meet, other research shows.
Across all ages and income
levels, more than one-third of adults have more credit card debt than emergency
savings, according to a recent report by Bankrate.
“At a time of record-high
credit card rates, we see a record-high number of Americans carrying credit
card debt that exceeds their emergency savings,” said Greg McBride, chief
financial analyst at Bankrate.
During times of financial
stress, it may make sense to borrow from a retirement account, rather than rely
on such high-interest debt, according to Fidelity’s Shamrell.
“If you have been in a
financial bind and the choice is a high-interest credit card or a loan from
your 401(k), sometimes the loan is your optimal choice,” he said.
“But that’s in a time of
real financial need,” he added, “not going to your college roommate’s wedding
in Napa.”
Unlike credit card and
other debt, savers who borrow from their 401(k) pay themselves
back with interest. Interest rates are also generally much lower than those of
credit cards, which are currently at a record high over 21%.
Source: CNBC