401(k) millionaires club grows: Plan participants with $1M+ jumped in Q2

Some good news for retirement savers: Fidelity’s Q2 2023 Retirement Analysis revealed several promising trends across all generations but especially among younger savers. Driven by steady employer and employee contributions along with favorable market conditions, retirement account balances across generations increased for the third straight quarter, led by Gen Z workers, whose 401(k) balances increased 66% during the previous year.

Young investors between the ages of 18 and 35 also saw a 34.4% increase in IRA accounts year-over-year and a 34.8% increase for females in this age bracket.

“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 at Fidelity Investments. “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.”

Overall, the average 401(k) balance increased 4% to $112,400 quarter over quarter, an 8% increase from 5 years ago and a 39% increase from 10 years ago. Millennials saw an increase of 24.5%, Gen X savers increased their 401(k) balances by 14.5% and boomers’ balances increased by 6.3%. Average 403(b) account balances were up 5% from last quarter to $102,400, and average IRA balances increased 5% quarter over quarter to $113,800.

Related: The supercharged 401(k): Getting employees on the millionaire track to retirement

The number of retirement millionaires jumped this quarter, with a 10% increase in plan participants with $1 million or more holding 401(k) accounts and a 13% increase in millionaires with IRAs. Fidelity’s 401(k) and IRA millionaires club is relatively small — 1.6 and 2.5% of Fidelity’s investors in those categories, respectively — but it’s growing again after falling for most of 2022.

“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.”

Student debt repayments pose a challenge

Student debt may pose an increasing challenge to saving for retirement as more than 43 million Americans must begin repaying student loans in October following a payment pause enacted in 2020 as a COVID-19 relief measure. Fidelity’s data shows that many student loan borrowers took advantage of the payment pause to focus on retirement savings, with 72% of student loan borrowers contributing at least 5% to their 401(k), compared with 63% prior to the payment pause. In addition, there has been a 5.8% decrease in student loan borrowers with a loan out against their 401(k) during the pause. According to Fidelity, nearly two-thirds of recent college graduates who have taken advantage of the payment pause say they have no idea how they are going to start repaying their student loans once the emergency pause is lifted.

Many employers are trying to help by integrating benefits targeted at making both retirement savings and paying down student loan debt possible at the same time. More than half of employers offer or plan to offer a student debt benefit, and Fidelity forecasts that workers enrolled in a student debt retirement option will be able to nearly double their 401(k) balances by age 65.

Meanwhile, Fidelity encourages retirement savers to take a long-term approach to saving and avoid making changes based on short-term economic swings. Target date funds are a good option, said Fidelity, because they help keep investors on a savings track and rebalance as the fund approaches its target date. Fidelity noted more than half of participants had all of their savings in a professionally managed target date fund during the second quarter.

Fidelity also noted the power of auto-enrollment features for new hires, saying its data shows that when participants are automatically enrolled and see their savings grow, they are likely to remain 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%, according to Fidelity.

Employees should also maximize their contribution to at least the amount their employer is matching and start an emergency fund to handle unexpected expenses without turning to a credit card or borrowing against retirement savings.

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.