The first half of the year treated retirement savers well.
The average 401(k) account balance with Fidelity Investments grew 10.5% in the second quarter from the end of March, a gain of 13.1% from a year earlier. Individual retirement account (IRA) balances jumped 10%, and 403(b) accounts gained nearly 12%.
Across all accounts, these were record highs, with 401(k) balances posting their strongest quarterly growth since December 2020, according to a new report.
Fidelity’s average 401(k) balance was $155,800 at the end of June. That’s a big shift from the first quarter report, when the average balance had fallen by 4% from the start of the year to $141,000.
The average IRA climbed to $144,523 from $131,400 at the end of March.
“Much of the strong retirement savings we saw this quarter didn’t happen overnight,” Mike Shamrell, vice president of workplace thought leadership at Fidelity Investments, told Yahoo Finance. “They’re often the result of years, and in many cases decades, of consistent saving and investing even during periods of economic uncertainty.”
The gains are also due in large measure to a strong stock market after a shaky start to the year.
The S&P 500 (^GSPC) was up around 15% in the second quarter and roughly 10.2% for the first six months of the year. By the end of June, the Nasdaq Composite Index (^IXIC) was up 12.8%, while the small-cap Russell 2000 Index (^RUT) jumped ahead by more than 20%.
Ballooning class of millionaires
Rising account balances created more retirement investors whose accounts top $1 million.
Overall, the number of those with $1 million or more in their accounts is up nearly 30% from the second quarter of last year.
At the end of June, there were 769,000 401(k) millionaires, up from 654,000 the previous quarter, and 684,140 IRA-created millionaires, up from 571,622 at the end of March.
Gen X makes up the lion’s share of that group — 62% of millionaires — followed by boomers at roughly 31% and 6% for millennials.
These aren’t casual investors. They’ve buckled down with disciplined routine savings, paycheck after paycheck. The average 401(k)-created millionaire is 58 years old and has been saving for an average of 25 years. Their average individual savings rate is about 17.3%. If you add employer matches, it totals 25.8%.
The 401(k) data is based on Fidelity’s 27,300 defined-contribution plans at various companies across the country, covering 25.8 million participants.
401(k) loans still on the rise
Still, the strain from rising costs is having an impact. A hefty 19.5% of Fidelity’s retirement savers had an outstanding 401(k) loan in the second quarter, up from 19.2% at the end of March.
Hardship withdrawals were taken by 3% of retirement savers, an increase from 2.6% a year ago.
Loans aren’t necessarily a terrible thing if you’ve got bills weighing on you. You withdraw money from your retirement savings and pay it back to yourself, typically within five years, along with interest. The loan payments and interest go straight back into your account.
If you leave your current employer, however, you might have to repay your loan in full immediately.
Written by: Kerry Hannon @Yahoo Finance
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