Retirement account balances reached all-time highs for the fourth consecutive quarter.
Helped by strong stock market performance, the average 401k and IRA balances increased 10 percent over the last year and continued to hit record levels, according to Boston-bases investment behemoth Fidelity Investments.
How much? The average 401k balance rose to $99,900, while the average IRA balance climbed to $103,500.
While they rose for every generation (Boomers, Gen X and Millennials), significant growth was seen among Gen X investors, with an average 401k balance increase of 18 percent to $98,800.
Among the specific findings:
- Individuals are contributing more to their retirement accounts. While part of the increase in retirement account balances can be attributed to stock market activity, the increase is also due to people putting more money aside for retirement.
The average 401k contribution rate reached 8.5 percent in the third quarter, the highest percentage in almost 10 years, and more than one-in-four savers (29 percent) increased their contribution rate over the last year.
The amount contributed to IRAs year-to-date increased 12 percent; Roth IRA contributions alone increased by 13 percent.
- More individuals using target-date funds to help keep 401k asset allocation on track. An increasing percentage of workers are using target-date funds for 401k savings, which can help individuals maintain an age-appropriate allocation of stocks, bonds and cash within their retirement savings account.
As of the end of the third quarter, 29 percent of all Fidelity 401k assets were held in target date funds, up from 18 percent at the end of the third quarter of 2012. Almost half of all workers (48 percent) hold all of their 401k savings in a target date fund, up from 30 percent in 2012.
“Two of the most important aspects of a retirement savings strategy are how much an individual contributes and how they allocate their savings,” Jeanne Thompson, senior vice president of Fidelity Investments, said in a statement. “The increasing use of target date funds, along with the increasing number of individuals contributing more to their retirement accounts, can help ensure people are saving at the right level and have a diversified mix of assets, which will put them on a path to reach their retirement savings goals.”
Workers with both an HSA and 401k contribute more than workers with just a 401k
As health care takes on a larger role within retirement savings discussions, an increasing number of companies are offering high deductible health plans with health savings accounts (HSAs), which allow people to put aside money for today’s health care expenses while also investing for medical costs they may incur in retirement.
While the number of HSA account holders on Fidelity’s platform increased 35 percent over the last year, Fidelity analysis indicates that workers who contribute to their HSA are not doing so at the expense of their 401k contributions—in fact, individuals who contribute to both their HSA and their 401k contributed an average of 9.9 percent at the end of the third quarter, compared to a contribution rate of 8.5 percent for individuals who only contribute to their 401k.
“Health savings accounts can be a great way to save for health care expenses alongside saving in a 401k, plus they include three key tax benefits: contributions go in tax-free, grow tax-free and balances and savings can be withdrawn tax-free for medical costs,” Thompson concluded.