Average 401(k) balances increased for the third straight quarter—and by double-digits over Q2 2022 balances, according to data released this morning from Fidelity’s Q2 2023 Retirement Analysis.
But it’s fledgling retirement savers in Gen Z (defined by Fidelity at being born between 1997 and 2012) that have really seen their 401(k) balances increase and get out of the starting gate. Fidelity reports a 66% increase in average Gen Z 401(k) account balances compared to a year ago, with the average Gen Z balance now at $8,100.
“We are pleased to see a third straight quarter of positive gains for retirement savers as the market continues to improve and both employees and employers commit to establishing a strong financial future”
Fidelity’s Kevin Barry
Fidelity’s latest quarterly report tracks retirement account balances for more than 45 million 401(k), IRA and 403(b) retirement accounts, and shows that all of them increased for the third straight quarter, tracking stock market gains and steady contribution levels. A year ago, Fidelity was reporting that average 401(k) balances had dropped to $103,800 in the quarter, down 20% from Q2 2021 when it was $129,300.
“We are pleased to see a third straight quarter of positive gains for retirement savers as the market continues to improve and both employees and employers commit to establishing a strong financial future,” said Kevin Barry, president of Workplace Investing at Fidelity Investments. “As we begin to see improvements in market conditions, maintaining high contribution and savings rates is an essential component of improving one’s retirement readiness.”
While the massive increase in Gen Z accounts can be explained by understandably much lower account balances compared to older generations that have been contributing to their 401(k)s for much longer on average, the 66% increase in a year to $8,100 is impressive nonetheless.
Millennials saw an increase of 24.5%, bringing their average 401(k) account balance to $48,300.
“I am so encouraged to see the leaps young investors are making when it comes to their retirement savings, across both 401(k)s and IRAs,” said Joanna Rotenberg, president of Personal Investing. “Investing at a young age not only allows your money the opportunity to grow to a level that will have a major financial impact on your future, but also presents an opportunity to learn about investing, try new things, and ultimately set yourself up for a successful financial future.”
Gen X savers increased 14.5% to an average 401(k) balance of $153,300 while Boomer 401(k) balances, understandably now more conservative in nature, increased by 6.3% to $220,900.
Today’s report also shows Boomers who have been focused on consistently saving over the long term benefitted the most from three quarters of growth. In fact, Boomers saving in their 401(k) plan continuously since 2008 now have an average balance of just under half a million dollars ($499,700).
Average balances on the rise
Across all generations, the average 401(k) balance for accounts recordkept by Fidelity reached $112,400 at the end of Q2 2023—up 4% from $108,200 at the end of Q1, and $103,800 a year ago. It’s also up a modest 8% from 5 years ago, but up 39% from a decade ago.
By comparison, the average 401(k) balance at plans recordkept by Bank of America increased by $7,250 (9.6%) so far this year, according to BofA’s Q2 2023 Participant Pulse survey, released Aug. 8. The average BofA 401(k) account balance as of June 2023 was $82,300, up from $75,050 at year-end 2022.
Returning to today’s Fidelity report, the gender gap remains prevalent, with men having average 401(k) balances of $134,400 compared to $90,600 for women. The overall average balance for 403(b) plans was $102,400 at the end of Q2 2023, up from $97,900 in Q1 and $93,300 a year ago.
IRA balances increased to $113,800 at the end of Q2, up from $109,000 in Q1—which was actually down from $110,800 at the end of Q2 2022.
Fidelity’s report also shows younger investors are increasingly starting to open IRA accounts. There was a 34.4% increase in IRA accounts year-over-year for young investors (age 18-35), and a 34.8% increase for females in this age bracket.
The total number of IRA accounts rose to 14.3 million, an 11% increase over Q2 2022; total assets have grown 14.3% this past quarter. Across generations, Roth IRAs continue to be the retail retirement savings vehicle of choice, with 59.1% of all IRA contributions going to Roth in Q2 2023.
401(k) Millionaire ranks swell
The number of “retirement millionaires”—or those with seven-figure balances in their retirement accounts—jumped in Q2 2023, with a 10% increase in millionaires holding 401(k) accounts (378,000 in Q2 2023 compared to 340,000 in Q1) and a 13% increase in millionaires with IRAs (349,104 in Q2 2023 compared to 307,623 in Q1).
After starting 2022 with a record number of 442,000 401(k) millionaires, the ranks fell to 406,000 at the end of Q1 2022 and dipped to just 294,000 at the end of Q2 2022 as last year’s sagging the stock market continued to drag down those seven-figure balances to a low not seen this decade until now. At the end of 2020 Fidelity counted 334,000 401(k) millionaires.
For comparison purposes, the federal government’s Thrift Savings Plan had just over 88,000 millionaires at the end of Q1 2023, which was about a 15% jump from the roughly 77,000 TSP millionaires at the end of 2022—but far below the highest-ever number of reported TSP millionaires, which was 112,000 at the end of 2021. Updated Q2 2023 TSP millionaire figures are not yet available. Just over one in 100 TSP accounts (1.3%) have hit the million-dollar mark.
Total 401(k) savings rates remain high
The total savings rate for the first quarter, reflecting a combination of employee and employer 401(k) contributions was 13.9%, mirroring the savings rate of Q2 2022. This is slightly lower than last quarter’s 14% rate, but higher than the previous quarters (13.7% in Q4 2022 and 13.8% in Q3 2022) and close to Fidelity’s suggested savings rate of 15% (including both employee and employer contributions). Boomers in the workforce continue to save at the highest levels (16.6%).
Fidelity’s data shows that when participants are automatically enrolled in a plan and begin to see their savings grow, they are especially likely to remain enrolled in the plan. In Q2, the number of employers offering auto-enrollment increased to 39%—and the average default contribution rate increased to an all-time high of 4.1% in Q2.
Outstanding 401(k) loans increased slightly
The percentage of 401(k) participants with a loan outstanding increased slightly to 17.1% in Q2, compared to 16.6% last quarter, which was an all-time low. The percentage is also well below the number of outstanding loans observed pre-pandemic.
The recent BofA Q2 2023 report found 2.5% of participants—about 75,000—at plans recordkept by BofA borrowed from their 401(k) in Q2 2023. That was up from 1.9% (56,000 participants) in Q1 and up from 2.3% in Q2 2022.
Impact of student debt on retirement savings
With 43 million Americans set to begin repaying student loans once again in October, the impact to retirement savings is top of mind for many, and with good reason: according to Fidelity’s data, many student loan borrowers have used the payment pause to focus on retirement savings, with 72% of student loan borrowers contributing at least 5% to their 401(k), compared to only 63% prior to the payment pause.
Additionally, there has been a 5.8% decrease in student loan borrowers with a loan out against their 401(k) during the pause (13.1% compared to 18.9% previously).
No surprise, then, nearly 2-in-3 recent college graduates taking advantage of the Federal student loan payment pause have no idea how they are going to start repaying their student loans once the emergency pause is lifted. To ease the mounting financial burden on borrowers, the Fidelity report notes many employers are stepping in to help by integrating workplace benefits that make it easier for employees to save for retirement while paying down student loan debt at the same time.
Currently, 55% of employers either offer or plan to offer a student debt benefit, which can have a profound impact on financial wellness: in fact, workers enrolled in a student debt retirement option are projected to be able nearly double (1.75x) their 401(k) balances by age 65.
For additional information on Fidelity’s Q2 2023 analysis, click here to access Fidelity’s “Building Financial Futures,” which provides additional details and insight on retirement trends and data, and this quarter includes data around the savings behaviors of pre-retiree and retirement-age participants.
SEE ALSO:
• 401(k) Balances Up in 2023, But So Are Hardship Withdrawals, Loans
• Trio of TSP Funds Up Over 15% in 2023
• 401(k) Participation Rate at All-Time High: Vanguard
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.