Despite ongoing market swings and economic uncertainty, average retirement account balances increased slightly in the third quarter, according to Boston-based Fidelity Investments.
Fidelity this week released its third-quarter 2020 analysis of retirement savings trends, including account balances, contributions and savings behaviors, across more than 30 million IRA, 401(k), and 403(b) retirement accounts.
The average 401(k) balance increased to $109,600 in Q3, a 5% increase from Q2 and up from 4% from a year ago.
The average IRA balance was $117,700, a 6% increase from last quarter and 7% higher than the average balance of $110,200 a year ago. The average 403(b) account balance increased to $96,100, an increase of 5% from last quarter and up 9% from a year ago.
While contributions to retirement accounts remained steady overall, the financial challenges created by the global pandemic drove retirement account withdrawals under the CARES Act for those employees with an immediate financial need.
“It’s encouraging to see average account balances increase slightly over the quarter and many individuals continuing to save in the face of the challenges posed by the pandemic, especially as many organizations, as well as their workers, are struggling in the current business environment,” said Kevin Barry, president of Workplace Investing at Fidelity Investments. “While the goal for retirement is to save and invest for the long-term, unexpected events can create a need to withdraw savings to cover near-term expenses.”
More Q3 highlights
- Employee and employer contributions remained steady. The total savings rates for 401k and 403b accounts, which is the combined employer and employee contribution rates, remained consistent from the previous quarter. The average total savings rate for 403(b) accounts was 10.6% and the total savings rate for 401(k) accounts was 13.5%. Across Fidelity’s 401(k) platform, nearly nine out of 10 (89%) individuals left their contribution rate unchanged in Q3.
- Roth IRAs continue to be a popular retirement savings account. Investors across all generations continue to leverage Roth IRAs as a retirement savings vehicle. From Q3 2019 to Q3 2020, 58% of all IRA contributions were to Roth IRA accounts, up from 54% for the same period a year ago, and overall, the number of Roth IRA accounts that received a contribution grew 35% over the past year. Total IRA contribution dollars, across all types of IRA accounts, increased 37% during the same period.
- More individuals are saving in both an IRA and a 401(k). An increasing number of individuals are saving in an IRA in addition to their workplace savings plan. More than 2 million individuals on Fidelity’s platform save in both an IRA and their employer’s 401k, an increase of 12.5% over Q3 2019. Among individuals saving in both their 401k and an IRA, the average combined balance rose to $333,700, an increase of 6% over the average balance of $312,000 a year ago. Millennials saving in both an IRA and a 401k saw their average balance increase 15.8% to $82,600.
- Workers continue to leverage CARES Act to help meet financial needs. The Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law in late March 2020 in response to the economic fallout from the COVID-19 pandemic. From March to the end of Q3, 1.2 million individuals had taken a CARES Act distribution from their retirement account, which represents 4.6% of eligible employees on Fidelity’s workplace savings platform. In Q3, the overall average withdrawal amount was $9,000, while the median withdrawal amount was $2,400. Since many employees who needed to tap their retirement saving opted for a CARES Act withdrawal, the percentage of workers initiating a traditional 401k loan dropped to 1.9% in Q3, with the overall percentage of 401k loans outstanding dropping to 18.7%.
For more information on Fidelity’s Q3 2020 analysis, click here to access Fidelity’s “Building Financial Futures” overview, which provides additional details and insight on retirement trends and data.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.