Surprising Findings in Fidelity’s Latest 401(k) Figures

Retirement Savings

We're confused.

There were several surprises in Fidelity Investments’ latest quarterly analysis of retirement savings. While 401(k) balances dropped (expected), investors opened IRAs as record numbers (not expected).

Some IRAs were no doubt opened as a result of layoffs and 401(k) rollovers, yet the Boston-based investment behemoth reported 407,000 new IRA accounts, and contributions to IRAs among Millennials increased 64% year-over-year.

“Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline,” Kevin Barry, president of Workplace Investing at Fidelity Investments, said in a statement. “It was encouraging to see that many investors stayed the course and did not make drastic changes to their asset allocations, with some investors increasing contributions to their retirement accounts.”

The average 401(k) balance was $91,400, down 19% from the record high of $112,300 in Q4 2019, but still higher than Q1 2010 balance of $71,500.

The average IRA balance was $98,900, a 14% decrease from last quarter but higher than the Q1 2010 balance of $66,200.

Contributions remained steady with some increasing

Despite significant market swings in Q1, most retirement savers did not pull back on contributions.

While the average 401(k) contribution rate remained steady at 8.9%, consistent with Q4 2019, 15% of 401(k) savers actually increased their contribution rate5 in the quarter.

The average employer contribution was also steady at 4.7%, a slight increase from 4.6% in the previous quarter and consistent with 4.7% in Q1 2019.

The average amount contributed to an IRA in Q1 2020 grew to $3,330, a 10% increase over the average contribution amount in Q1 2019.

Number of newly opened IRAs reach record levels in Q1

Investors continue to leverage IRAs as a retirement savings vehicle, with new account openings reaching more than 407,000 in the first quarter, a 36% increase over new IRAs opened in Q1 2019.

A growing number of millennial investors are utilizing IRAs as a retirement savings vehicle, with contributions among millennials increasing 41% over the last year.

Among female millennials, the number of IRAs increased by 20% from Q1 2019.

In addition, the number of Roth IRAs among millennials also increased 41% over the last year, with the amount of Roth IRA contributions growing 64%.

Hardship withdrawals increased slightly, new 401(k) loans dropped

Prior to the enactment of the CARES Act in late March, only 1.4% of individuals took a hardship withdrawal from their 401(k) in Q1 2020, less than half a percentage point more than the 0.9% that took a hardship withdrawal in Q1 2019.

The percentage of individuals initiating a 401(k)-loan dropped to 2.3% in Q1, down from the 2.6% of 401k savers that initiated a loan in Q4 2019 and consistent with 2.3% that took a 401k loan in Q1 2019.

While ongoing financial uncertainty and provisions within the CARES Act may result in higher loans and withdrawals later in the year, individuals did not draw significant funds from their retirement accounts in the first quarter.

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