Number of 401(k), IRA millionaires surge
Defined contribution and IRA account balances are not only on the rise overall, but a record number are hitting seven figures, according to Fidelity Investments’ latest quarterly report.
The average 401(k) balance rose to $104,000, a 6% increase from the second quarter of 2017. The average IRA balance increased nearly 7% from the second quarter of 2017 to $106,900. The average 403(b) account held $83,400, a 5% increase from $78,900, in the second quarter of 2017.
What’s more, the number of Fidelity 401(k) plans with a balance of $1 million or more jumped to a record 168,000 in the second quarter, up from 119,000 a year earlier. That’s a 41% surge. The number of IRA millionaires also grew, hitting 156,000.
“The stock market’s performance over the past several years has definitely helped retirement savers, but now would be a good time for investors to take a moment and make sure they are doing their part to meet their retirement goals,” says Kevin Barry, president of workplace investing at Fidelity Investments. “Markets may go up and down, but there are a number of steps individuals can take, such as considering a Roth IRA, increasing your savings rate and avoiding 401(k) loans, which can play an important role in their long-term savings success.”
See also: The next big advancement for the 401(k)
More good news from Fidelity: Fewer employees are dipping into their retirement accounts. The number of workers who take loans from their workplace defined contribution plans has dropped to its lowest level since 2009, according to Fidelity Investments, with only 20.5% of workers having an outstanding plan loan. Fidelity points out that Gen Xers are the most notorious retirement plan loan takers and even they experienced a drop in the second quarter, with only 26.4% of them having an outstanding loan from their 401(k) plan.
The percentage of new plan loans dropped to 9.7%, the lowest it has been since the first quarter of 2017.
Another trend spotted by Fidelity in its second quarter analysis is that more millennials are saving for retirement through either a traditional or Roth IRA. The average IRA balance for millennials jumped 9% in the second quarter to $15,150, and the number of millennials jumping on the IRA bandwagon increased 19% over a year ago, says Fidelity. Millennials tend to favor the Roth IRA, with 75% of millennials making contributions to these types of accounts.
Certain plan design changes have helped encourage more workers to save money for their retirement through a workplace plan. Fidelity, which has $7 trillion of assets under administration, says that at the end of the second quarter, 33% of Fidelity’s 22,600 401(k) plans auto-enrolled new employees into their plans, more than double the percentage that did so a decade ago. The largest plans are the most likely to include an automatic enrollment feature, with 61% automatically enrolling new employees, according to Fidelity.
The average default savings rate also rose in the second quarter of 2018 to 3.9%, after five straight quarters at 3.8%, Fidelity says. For mid-sized companies with 25,000 to 50,000 employees, the average default savings rate increased to 4.6%. The number of employers who default their employee contributions at 6% or more has also doubled over the past 10 years to 19%.
Just because a company automatically enrolls workers into its retirement plans doesn’t mean they always stay in it, but Fidelity finds that the average participation rate among plans with automatic enrollment was 87% in the second quarter, compared with a participation rate of 52% among plans that don’t offer the auto-enroll feature. Automatic enrollment had a big impact on millennial workers in particular, according to the analysis, with an 87% participation rate. That compares to a 41% participation rate for millennials in retirement plans without automatic enrollment.
Fidelity also finds that employees who are automatically enrolled in a workplace plan tended to save more. The average savings rate for those who were automatically enrolled in a plan increased from 4% to 6.7% in the past decade and 63% of workers who were auto-enrolled increased their savings rate during that time.
“As retirement savings plans continue to evolve to meet the changing needs of today’s workforce, it’s clear the one feature that has really had a positive impact on the retirement landscape over the past decade is auto enrollment,” Barry says. “Auto-enrollment positioned an entire generation of workers to build their retirement nest eggs.”