There’s plenty of good news in Fidelity’s just-released second quarter retirement analysis, including record-high 401(k) savings rates and account balances—and less pandemic-related stress.
Although many Americans are still addressing challenges posed by the pandemic, the Q2 analysis of more than 30 million IRA, 401(k) and 403(b) retirement accounts at Boston-based Fidelity Investments highlights positive results across retirement account balances, contributions, and savings behaviors, with each category increasing to record levels for the third consecutive quarter.
Baby Boomers increased their contributions to 401(k) and IRA accounts, while the average 401(k) savings rate reached a new high. Positive investing behavior, including a decreasing number of outstanding 401(k) loans, was complemented by positive investor sentiment, with workers reporting reduced levels of stress and anxiety.
“The pandemic is clearly fueling a shift in how Americans prioritize their work, health, personal lives and financial well-being, so it’s encouraging to see a continued improvement of retirement savings rates and individuals expressing more feelings of hope and fewer feelings of stress,” said Kevin Barry, president of Workplace Investing at Fidelity Investments.
Average savings rate tops 9%
Notably, the average 401(k) employee savings rate reached a record 9.3% in Q2 as younger workers have increased their contribution rates. Over the last year, more than one in three (38%) of 401(k) savers have increased their savings rate, while only 7% of workers have decreased their 401(k) savings rate since Q2 2020. More than half of Gen Z workers (54%) increased their 401(k) savings rate over the last year, while 43% of Millennials have increased their savings rate since Q2 2020.
Record average account balances
- The average 401(k) balance increased to $129,300 in Q2, a 4% increase from Q1 2021 ($123,900) and up 24% from a year ago ($104,400). In Q2 2011, it was $73,000.
- The average 403(b) balance increased to a record $113,300, an increase of 6% from last quarter ($107,300) and 24% higher than in Q2 2020 ($91,100). In 2011 it was $56,300.
- The average IRA balance was $134,900, a 4% increase from last quarter ($130,000) and a 21% increase from Q2 2020 ($111,500). Ten years ago, it was $72,200.
Millionaire ranks rise
Fidelity’s latest data also revealed that the number of 401k accounts at the company with balances of $1 million or more grew 84% to 412,000, compared to 224,000 a year ago. The number of million-dollar IRAs increased 64%, from 204,000 to 341,600.
More highlights
- Baby Boomers boost contributions as retirement approaches. As the youngest Baby Boomers enter their late 50s, Fidelity found that many investors in this generation are increasing their contributions to their retirement accounts. A record 18.2% of Baby Boomers made a “catch-up” contribution to their 401(k) in Q2, with 58% of Boomers making the maximum catch-up contribution of $6,500 by the end of last year.
Among Baby Boomers with an IRA, Fidelity found that that average contribution amount increased 17% over Q2 2020 to $3,570, while the total number of IRA contributions among Boomers increase 57% when compared to the same quarter last year. The average 403(b) contribution rate for Boomers increased to 10.9% in Q2.
- Individuals taking a long-term approach to retirement savings continue to see gains. The overall average balance for individuals who have been in their 401(k) plan continuously for 10 years crossed the $400,000 threshold for the first time, reaching $402,700 in Q2.
Among women investors, the average 10-year continuous 401(k) balance reached $324,700 in Q2. The average balance for 403(b) investors who have been in their plan for 10 years reached $233,300, nearly 3x the average 10-year continuous balance in Q2 2011.
- Decreasing 401(k) loans, asset allocation changes. While many workers, and their employers, continue to face financial uncertainty due to the ongoing impact of the pandemic, recent Fidelity research and positive investment behavior in may indicate that workers are starting to feel more stability and a sense of normalcy.
A recent survey of Fidelity 401(k) plan participants found that the percentage of workers who reported feeling stressed dropped from 41% last November to 27% this May, while the percentage of workers who reported feeling anxious dropped 37% to 20% during the same period. At the same time, the percentage of workers who reported feeling hopeful increased from 32% to 42% between November and May, while the percentage of individuals that reported feeling calm increased 20% to 32% during the same time period.
The positive sentiment among 401(k) savers is also reflected in investor behavior, specifically in the areas of 401(k) loans and asset allocation. Here are several examples of positive investing behaviors in Q2:
- The percentage of outstanding 401(k) loans remained at a record low. Less than one in five (17.5%) individuals had an outstanding loan from their 401(k) in Q2, a record low percentage and consistent with the percentage of outstanding 401(k) loans in Q1. While some workers may still have to tap their 401(k) to help address a financial challenge, the long-term trend of decreasing loan usage continued in Q2.
- Fewer individuals are making changes to the asset allocation within their 401(k). Only 5.3% of 401(k) savers made a change to their asset allocation in Q2, the lowest percentage since Q4 2019. Of the 401(k) savers that made a change to their allocation, 80% only made just one change in the quarter.
For more information on Fidelity’s Q2 2021 analysis, click here to access the “Building Financial Futures” overview, which provides additional details and insight on retirement trends and data.
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