As the stock market continues to rebound from March lows, 401(k)s are trending higher right along with it.
The average 401(k) balance increased to $104,400 in the second quarter, a 14% increase from Q1 but down 2% from a year ago.
In its roundup of retirement accounts for which it acts as recordkeeper, Fidelity noted that while employer-based retirement accounts “held steady,” increased IRA contributions, including to Roths, resulted in record-breaking flows to retail retirement accounts.
“While the stock market’s performance in Q2 helped drive workplace retirement account balances higher, employer contributions also played a key role,” Kevin Barry, president of Workplace Investing at Fidelity Investments, said in a statement. “Nearly 90% of employers continued to offer matching contributions to their employees over the last quarter, despite the unsteady business landscape.”
President Trump noticed and remarked on the rebound over the weekend, according to Bloomberg.
“So, 401(k)s are doing fantastically,” he said as he signed several stimulus-related economic orders. “I hope you kept your stocks. I hope you didn’t sell.”
Contributions
Retirement savers did not pull back on contributions, despite market volatility. Almost nine out of 10 individuals contributed to their 401(k), a slight drop from the previous quarter’s record high of 89% but still in the top five averages since 2002.
Less than one percent of savers stopped saving in the quarter, while 9% increased their contribution rate.
Younger workers
The past quarter saw Millennials maintain a focus on contributing to their retirement accounts, with the number of IRA accounts owned by Millennials 2020 increasing by 23% since Q2 2019.
In particular, Millennials continued to prefer investing in Roth IRAs, with a 36% year-over-year growth in the number of contributing accounts and a 50% increase in the amount of Roth IRA contributions.
CARES Act impact
By early April, 98% of Fidelity’s workplace clients had adopted the CARES Act distribution provisions, which allowed their employees to tap their savings to cover financial needs related to the economic downturn.
As of the end of Q2, 711,000 individuals had taken a CARES Act distribution from their retirement account, which represents 3% of eligible employees on Fidelity’s workplace savings platform.
The overall average withdrawal amount was $12,100, while the median withdrawal amount was $4,800. Individuals continued to seek out information on the CARES Act and COVID-19 issues, as Fidelity’s COVID-19 information website was viewed more than 1.3 million times in the quarter.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
