The number of 401k millionaires continues to grow, reaching record levels at the end of 2019 according to the latest quarterly analysis of retirement savings trends from Fidelity Investments.
The number of Americans with $1 million or more in their 401k increased to a record 233,000, up from 200,000 in Q3 and 21,000 in Q4 2009, according to Fidelity’s analysis of retirement savings trends, including account balances, contributions and savings behaviors, across more than 30 million 401k, IRA and 403b retirement accounts, released Feb. 13.
Positive savings behaviors among employees, enhancements to workplace savings plans and strong market conditions in Q4 2019 caused average account balances to reach record levels, as well as significant increases over the previous decade.
“The growth in savings levels over the last 10 years demonstrates the positive impact of taking a long-term approach to retirement, and recent Fidelity research demonstrates workers who do so have reason to feel increasingly confident about their retirement readiness,” said Kevin Barry, president of Workplace Investing at Fidelity Investments. “However, as we enter a new decade and continue to see markets rise and fall, it’s more important than ever to remember some of the important elements of a successful retirement strategy—these include maintaining positive savings habits, ensuring your account has the right balance of stocks, bonds and cash, and continuing to focus on your long-term savings goals.”
The analysis also found the average 401k balance rose to $112,300, a new record high and a 7% increase from last quarter’s balance of $105,200. The year-over-year average balance increased 17% from $95,600 in Q4 2018.
401k savings rates continue to increase
Per the Fidelity analysis, the average employee savings rate reached a record 8.9% in Q4, while the average total savings rate (employee contributions + company match) reached 13.5%, tying a record level last reached in Q2 of last year.
Over the course of 2019, 33% of plan participants increased the amount they are saving, with the average increase just over 3%.
Of the workers who increased their savings rates, 40% proactively took steps to do so on their own, while 60% had their savings rate automatically increased through a service within their employer’s retirement savings plan.
Among individuals who have been in their 401k plan for 10 years straight, the average balance reached a record $328,200, topping the previous high of $306,500 from last quarter. Among female investors, the average 10-year 401k balance grew to $261,000, an increase of 21% from a year ago and the first time the average balance for this group passed the quarter million-dollar mark.
The average 401k balance for Millennials who have been in their 401k plan for 10 years straight reached $149,800, another record high.
Plan design enhancements help savings efforts
While a growing population of employees are taking positive steps to improve their retirement savings, at the same time an increasing number of employers are making changes to their workplace savings plans and adding features and services designed to help employees with their retirement savings efforts. These include:
- Record number of workplace plans offering a managed account. Managed accounts provide workers with professional planning and support in managing retirement savings, which can give employees more confidence in their financial plan and overall financial situation. The percentage of 401k and 403b/tax exempt plans offering individuals this option grew to 32% in Q4 2019, nearly double the 17% offering this option on Q4 2014.
- More employers are automatically enrolling new employees and at a higher default contribution rate. As of Q4 2019, a record level of employers (35%) automatically enrolled new workers in their 401k plan. A growing percentage of employers are enrolling new employees at higher rates—more than a third of plans (34%) now enroll new workers at a savings rate of 5% or higher, compared with only 11.8% enrolled at that level in Q4 2009.
- A growing number of employers are automatically increasing employees’ contribution rate each year. The percentage of 401k plans automatically increasing the contribution rate for employees has more than doubled over the last 10 years, from 9% in Q4 2009 to 19% in Q4 2019. And while the limit for auto-increase contributions was capped at 10%, the SECURE Act will allow plans to auto-increase employee contributions up to 15%.
“Millions of people rely on a 401k, 403b or IRA as primary vehicles for retirement savings, so the industry needs to continue to find ways to make these accounts more accessible, more efficient and easier to use,” Barry said. “We are extremely excited to see how the SECURE Act will impact the retirement landscape and improve savings for the American workforce.”
More highlights
- IRA millionaires also hit record high. Fidelity, the market-leading workplace benefits company and America’s No. 1 IRA provider, also announced the number of IRA millionaires increased to 208,000, also a record high and an increase from 182,400 last quarter. The average IRA balance rose to a record $115,400, a 5% increase from last quarter and 17% higher than the $98,400 balance one year ago.
- Percentage of investors contributing to IRAs increases, led by Millennials. The overall number of IRA accounts with a contribution in Q4 increased 7% from a year ago, with the percentage of Millennials contributing to an IRA increasing 21% over Q4 2018. Millennials contributed a total of $373 million to IRAs in the fourth quarter, a 46% increase over the total amount contributed in Q4 2018, with 73% of Millennial contributions going into Roth IRAs.
- The average 403b/tax exempt account balance increased to $93,100. This is up 6% from last quarter and an increase of 18% from Q4 2018. Among individuals saving in 403bs (or other plans offered by not-for-profit employers) for 10 years straight, the average balance increased to $191,700, nearly five times the average balance for this group in Q4 2009.
For more information on Fidelity’s Q4 2019 analysis, click here to access Fidelity’s “Building Financial Futures” overview, which provides additional details and insight on retirement trends and data.