After difficult stock market conditions during the third quarter of 2023 put a crimp on 401(k) balances, a strong Q4 market led to a huge 20% spike in the number of “401(k) Millionaires” among retirement savers with plans recordkept by Fidelity.
The 20% increase in 401(k) millionaires final quarter of 2023 translates to 422,000 participants having account balances reaching seven figures at the end of last year, compared to 349,000 at the end of Q3. The number of millionaires in Q4 is also 11.5% higher than Q2 2023, when the count was 378,000.
That’s just a part of the good news contained in today’s latest update from Fidelity on the savings habits of workplace retirement plan participants and IRA savers. Improved market conditions and consistent contributions helped boost average account balances to their highest level in nearly two years. Additionally, more than a third (37%) of workers increased their retirement savings contribution rate in 2023. In Q4 alone, 10% of employees increased their contribution rate.
“This past year ended on a high note for retirement savers.”
Fidelity’s Sharon Brovelli
The average 401(k) account balance at Fidelity at the end of 2023 was $118,600, which is up 10% over Q3 2023, 14.1% over Q4 2022, and 32% over Q4 2013.
Importantly 78% of 401(k) savers were contributing at rate high enough to secure the full matching contribution offered by their employer. The report reveals the total 401(k) savings rate remained steady at 13.9%, consistent with Q2 and Q3 2023.
“This past year ended on a high note for retirement savers,” said Sharon Brovelli, president of Workplace Investing at Fidelity Investments. “When it comes to matters like market stability and economic events, 2023 gave us the highs of the highs, and the lows of the lows, but encouragingly, many retirement savers took the long view and stayed the course through it all, which is the type of commitment that can lead to a secure financial future.”
More key findings
• In Q4, 48% of individuals proactively increased their contribution rate, rather than relying on auto increases. For the full year 2023, of the people that increased their contribution, 27% proactively increased their contribution rate.
• With required minimum distributions (RMDs) kicking in around age 73, as a result of SECURE 2.0’s recent provisions, most pre-retirees and retirees under the age of 70 maintained a savings mindset and did not withdraw from their 401(k) plans, the report found. While 94% of retirees age 73+ made 401(k) withdrawals in 2023, just 20% of retirees age 70-72 made 401(k) withdrawals.
• Among pre-retirees and retirees who made a withdrawal in 2023, the vast majority tended to withdraw 4% or less. However, younger groups (55-59) showed a higher tendency to withdraw more, with 10.2% withdrawing 5-9% and 8.2% withdrawing 10-24%, compared to 8.8% and 1.8% respectively for those 70+.
• The average balance for Gen X workers in their 401(k) plan for 15 years straight topped half a million dollars ($501,000) at year end 2023, illustrating the benefits of consistent savings, contributing enough to receive the employer match and taking a long-term approach to retirement. As of the end of 2023, more than 4.7 million workers have been in their 401(k) plan for 5 years or more.
• The average IRA balance was $116,600 at the end of 2023, up 6% from Q3 2023, and 12% from Q4 2022.
• Gen Z Roth IRA accounts increased 50% in Q4 2023 compared to Q4 2022, with average contributions increasing by 1.1%. IRA accounts owned by female Gen Zers increased by 59% over the last year.
• The average 403(b) account balance was $106,100 at the end of 2023, up 9% from Q3 2023 and 14.5% from Q4 2022.
Plan design trends
• Roth 401(k)
Employers continue to explore plan design features that can help improve savings efforts among their workforce. For example, the percentage of plans that offer a Roth option has increased significantly over the last 5 years. At the end of 2023, 90.4% of plans offer a Roth option, up from 76.4% at the end of 2021.
• Auto Enrollment
The use of auto enrollment continues to climb steadily. At the end of 2023, 38.8% of plans employ auto enrollment, up from 36.9% at the end of 2021 and 33% at the end of 2018.
The average auto enrollment default contribution rate stands at 4.1%, up slightly from 4% at the end of 2021. The report found 38.5% of AE plans default to a rate of 5% or higher.
• Target Date Funds
At the end of 2023, 94.3% of plans default to Target Date Funds, up from 92.5% at the end of 2022 and 89.9% at the end of 2018.
As of Q4, 63.3% of workers had all of their retirement savings in a Target Date Fund; among Gen Z workers the percentage increased to 84.4%.
• Managed Accounts
Managed accounts have shown significant growth. The percentage of plans now offering a workplace managed account grew to 42.1% at the end of 2023, up from 37.7% at the end of 2022 and 27.9% at the end of 2018.
As one of the country’s leading workplace benefits providers and America’s top IRA provider go here to see Fidelity’s latest analysis of savings behaviors and account balances for more than 45 million IRA, 401(k), and 403(b) retirement accounts. Additional details and insight on retirement trends and data can be found in Fidelity’s “Building Financial Futures.”
SEE ALSO:
• 401(k) Balances (and Millionaires) Dip Slightly in Q3: Fidelity
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• U.S. Millionaire Ranks Swell by 500,000