401(k) participants, especially those with balances of at least $1 million, have had a good run over the past year. Fidelity Investments reported a record high number of 401(k) ‘millionaires’ in the second quarter, with almost half a million accounts having balances of $1 million or more. The average balance reached $1,595,200, showing an increase from the prior quarter. However, for the majority of 401(k) participants, the numbers were less impressive, with a mix of good and bad news.
While stock market returns have been strong, creating an adequate retirement nest egg requires consistent saving and investing over an individual’s career. The average savings rate for participants was 14.2% of their income in the second quarter, just below the 15% recommended by retirement experts. This rate includes employee contributions and employer matches. The average 401(k) balance for all participants rose to $127,100, up 1% from the first quarter and 13% from the same period a year earlier.
When looking at specific age groups, such as Gen Xers, there are variations in retirement savings. Those who have been saving in a 401(k) for at least 15 years saw their average balance reach $554,000. However, the overall average balance for all Gen Xers with a 401(k) was $182,100, with a median balance of $55,500. Fidelity’s numbers include accounts of new participants or individuals who rolled over savings from a previous job, potentially impacting the averages reported.
Despite the increase in contributions to IRAs among Gen Xers, there are concerns about retirement savings adequacy for this generation and other private-sector workers without access to a 401(k) or who cannot afford to participate. Policy experts worry that many individuals will not have enough savings to maintain their standard of living in retirement and may have to rely heavily on Social Security benefits. These concerns highlight the importance of consistent saving and investing for retirement to ensure financial security in later years.
The overall positive trend in 401(k) savings for some participants contrasts with the challenges faced by others, indicating a disparity in retirement readiness among different groups. While achieving millionaire status in a 401(k) is a significant accomplishment, many individuals are still lagging behind in saving for retirement. Addressing these gaps in retirement savings will be crucial for ensuring financial security and stability for individuals as they transition into retirement. By promoting financial literacy and encouraging consistent saving habits, individuals can better prepare for a comfortable retirement.
