Despite a challenging market and high day-to-day costs, new research from Fidelity Investments finds account balances are up in 2023.
The Q1 2023 report analyzes savings behaviors and account balances for over 44.5 million individual retirement account (IRA), 401(k) and 403(b) retirement accounts, and connects the increased balances to improved market conditions and a rise in employer contributions.
According to Fidelity, the average IRA balance was $109,000 in Q1 2023, a 5% increase from both last quarter and pre-pandemic levels five years ago, even as assets dropped 4.5% between Q1 2022 and Q1 2023.
The average 401(k) balance increased to $108,200, up 4% from Q4 2022 and 5% from five years ago. For 403(b)s, the average account balance climbed to $97,900, up 6% from last quarter and a 16% increase from five years ago.
“We are encouraged to see positive gains for retirement savers, evidenced through rising account balances, improved savings rates, and a commitment by employers – including small businesses – to help employees prepare for the future,”said Kevin Barry, president of Workplace Investing at Fidelity Investments, in a statement. “Americans have experienced some tumultuous years, but through Congress’ investment in retirement savings through the Secure Act of 2019, as well as individuals’ continued commitment to save, we are optimistic for the future of retirement security.”
Employer contributions reach record levels
As more workers look for better care in the workplace, Fidelity’s research finds plan sponsors are contributing to employee retirement accounts at record paces.
Over eight in 10 (85%) workers received some type of employer 401(k) contribution in Q1 2023, with the average employer contribution reaching a record of $1,950 in the first quarter. Seventy-eight percent of workers contributed just enough to their 401(k) to receive the full matching contribution.
As a result, the total savings rates for the first quarter—a combination of both employer and employee 401(k) contributions—grew to 14%. This is compared to 13.7% in Q4 2022 and 13.8% in Q3, according to Fidelity.
Baby Boomers saved the most out of all generations (16.7% vs. 16.5% in Q4), with Gen Z workers increasing their savings rates as well (10.5% vs. 10.2% in Q4).
Gen Zers on the rise
With Gen Zers now settling in the workforce, Fidelity found the youngest cohort are making strides in their savings. Average account balances among Gen Zers with a 401(k) grew by 17% in the last quarter—the highest of any age group, reported Fidelity.
Gen Zers have also seen the highest account growth over the past year, up 34% from Q1 2022.
On the IRA side, Gen Z saw a 25% increase in accounts opened in Q1 compared to a year ago, while Gen Z women saw a 22% increase in IRA accounts opened.
The findings show that IRA accounts continue to be a popular tool, especially among younger age groups, said Fidelity. The number of IRA accounts climbed to 13.9 million, at an 11% increase over Q1 last year. Across all age cohorts, Roth accounts were reported as the most popular retail retirement savings vehicle, with 58.4% of all IRA contributions going to Roth in Q1 2023, Fidelity found in its report.
Job market changes increase automatic enrollment
As a result of new additions to the job market in 2023, 575,000 new workers were automatically enrolled in their employer’s Fidelity 401(k) plan throughout the first quarter.
Average account balances increased for the second straight quarter, and the average employer 401(k) contributions reached 4.8%.
Additional findings
Additional findings from Fidelity’s Q1 2023 analysis include:
- Members of the not-for-profit workforce also maintained strong savings rates across genders and generations, with an average savings rate of 11.6%, an increase from 11.4% last quarter.
- The percentage of participants with a loan outstanding dropped to an all-time low of 16.6% for Q1 2023—down just slightly from last quarter (16.7%) and down from 21% five years ago.
SEE ALSO:
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
