More folks can retire as millionaires.
The number of people with $1 million or more saved in their 401(k) accounts leapt 10% from April to the end of June, according to Fidelity Investments. There was also a 13% pop in millionaires with IRA accounts held at the firm during that same timeframe.
And it isn’t just newly minted millionaires who have something to crow about. For the third straight quarter, Fidelity reported retirement account balances increased for all savers. That’s according to the company’s second quarter analysis of savings account balances for more than 45 million IRA, 401(k), and 403(b) retirement accounts.
Numerous factors played a role in the gains, including the ability to stick to saving for the long haul to ensure security in their golden years.
“Overall, the increase in balances [for all investors] was based on ongoing employer and employee contributions, along with positive market performance,” Michael Shamrell, vice president for workplace thought leadership for Fidelity, told Yahoo Finance.
“The increase we are seeing in 401(k) millionaires this quarter [also] shows the value of long-term investing.”
All told, there were 378,000 retirement savers in Fidelity 401(k) plans spotting balances of seven figures and beyond as of June 30, up from 340,000 at the end of March and 299,000 at the end of December. There were 350,000 IRA millionaires on June 30, up from 307,623 at the end of March and 280,320 at the end of December.
Still, those tallies fall short of their peaks, which was 442,000 for 401(k) millionaires at the end of 2021 and 376,100 for IRA millionaires in the same quarter when the S&P 500 just finished a nearly 27% 12-month run.
Overall, all retirement savers made out better.
The average 401(k) account balance was $112,400 on June 30, up from $103,900 at the end of December. The average IRA balance was $113,800, up from $104,000 at the end of last year. Boomers, in fact, now have an average balance of just under half a million dollars ($499,700), Fidelity reported.
The bigger balances came from a combination of a few factors.
First, a stronger stock market – the S&P 500 (^GSPC) was up over 15% from January through the end of June. That helped, but account performance wasn’t quite on par with those robust market gains because many of the Fidelity accounts are invested in target date funds that aren’t designed to match or exceed the returns of the stock market. Instead, they are meant to provide steady gains through a mix of stock and bond investments until the targeted date of retirement.
In fact, in the second quarter, more than half of Fidelity’s 401(k) participants held all of their savings in a professionally managed target date fund.
“Very few 401(k) accounts are all stock, which means they won’t track to the S&P,” Shamrell said. “Additionally, the overall average also includes the balances for older workers, which will be more conservative. For example, the average boomer account balance only increased 6.3%.”
Folks also benefited from the ripple of automatic retirement plan enrollments and auto-escalation of contributions that has kept workers’ investment streams at a steady beat — regardless of market performance.
About one in four employers offer auto-enrollment now and the average employer default contribution rate (the amount paid into your retirement account if you don’t make your own selection) is at an all-time high of 4.1%, according to the report.
Another explanation for some of the spike in balances: Many student loan borrowers have used the student loan payment pause to focus on retirement savings, with 72% of student loan borrowers contributing at least 5% to their 401(k), compared with only 63% prior to the payment pause, according to the Fidelity data.
401(k) millionaire saving secrets
The new millionaire club members are not your run-of-the-mill savers. The Fidelity breakdown shows that on average, they save 17.2% of their pay. Their employers contribute an additional 9.3% to their retirement accounts for a total savings rate of 26.5%.
Few workers can match that kind of lofty level. That said, they’re trying. The total 401(k) savings rate for the first half of this year — a combo of employee and employer match contributions — was roughly 14%, Fidelity found. This is a touch above the 13.7% and 13.8 % rates in the past year.
The average age of a retirement account millionaire is 59, and they’ve been socking away savings for decades. Boomers comprised more than half (52.2%) of Fidelity’s millionaires with Gen X hot on their heels clocking in at 45.5%, while millennials accounted for just 0.5%.
Moreover, these millionaires probably have even more saved for retirement than Fidelity is privy to with additional funds invested in retirement accounts held at other financial services firms, such as IRA accounts set up with a rollover from a former employer’s plan.
“The average savings tenure of our millionaire savers is 26 years. That shows that continuing to invest over the long term can pay huge dividends over time, particularly during positive turns in the market,” Shamrell added.
Don’t stop thinking about tomorrow
In reality, while having $1 million saved for retirement sounds like a luxury, it doesn’t mean it’s time to call it a day by any means.
When you factor future market fluctuations and the possibility of financing three decades of living expenses in retirement, financial experts advise that this is not the time to hold your horses.
“Hitting major milestones is very motivating,” Mariel Beasley, co-founder of the Common Cents Lab at Duke University, told Yahoo Finance.
“But typically, the motivation increases as you get closer to the milestone or goal. This means that folks whose balance is $990,000 might actually be more motivated to keep saving or increase their savings than folks whose balance is now $1,010,000.”
That may call for some soul-searching for this new class of Fidelity millionaires.
“Becoming a millionaire can have a profound effect on how people view themselves, and their behavior,” Beasley said. “One, it may increase spending because they feel more affluent. Or, it may increase savings because they view themselves as a successful saver and want to continue to build on that success.”
Kerry Hannon is a Senior Reporter and Columnist at Yahoo Finance. She is a workplace futurist, a career and retirement strategist, and the author of 14 books, including “In Control at 50+: How to Succeed in The New World of Work” and “Never Too Old To Get Rich.” Follow her on Twitter @kerryhannon.
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