A million dollars ain’t what it used to be, but it can’t hurt to have it.
Investors took blow after blow during a tumultuous 2022: Rising inflation, rising interest rates and declines in the bond and stock markets all led to substantial declines in average retirement account balances last year. But this year brings better news: account balances have grown by double digits over the past 12 months. In fact, the growth is so strong that the share of 401(k) millionaires has grown 25% year-to-date, according to Fidelity Investments’ retirement analysis for the second quarter of 2023.
At least 378,000 people with Fidelity 401(k) plans had at least $1 million in their accounts at the end of June, compared to 299,000 at the end of 2022. Individual retirement account (IRA) millionaires also grew in the second quarter, with 349,104 at the end of June, according to the report from Fidelity, which analyzed the savings behavior and account balances of more than 45 million retirement accounts it manages.
And it’s possible that Fidelity’s analysis underestimates retirement account millionaires, since individuals can contribute to both 401(k)s and IRAs, or have accounts with other institutions. Of course, there are many people in the US who don’t have a retirement account at all, and balances vary considerably depending on factors such as age, occupation, and income.
Fidelity attributes the growth to strong contribution rates and to the recovering stock market. The total contribution rate – which combines employee and employer contributions – for the second quarter was 13.9%, in line with what many experts advise (Fidelity suggests 15%). Baby boomers save the most, according to Fidelity, with a premium rate of 16.6% of their quarterly pay.
While there are more 401(k) millionaires out there, having at least a seven-figure balance is far from the norm. Overall, the average 401(k) balance rose to $112,400, while the average IRA balance was $113,800 last quarter.
Young professionals see their savings skyrocket
Young savers in particular have done well. Gen Z saw a 66% increase in average 401(k) balances compared to a year ago, while Millennials saw a 24.5% increase. Gen X average balances rose 14.5% and baby boomers saw an average increase of 6.3% compared to a year ago.
Other reports show that younger workers are saving more for retirement than their older peers of a similar age. Premium rates typically make the biggest difference to balances when employees are just starting out, making it critical for them to start investing; after years of compound growth, yields are starting to play a bigger role.
“I’m so encouraged to see the leaps young investors are making when it comes to their retirement savings, both across 401(k)s and IRAs,” Joanna Rotenberg, president of Personal Investing at Fidelity, said in a statement. Young gives investments more time to grow and collaborate.
The growth is good news for savers, who increasingly report that they will need more and more to live comfortably in retirement. A recent report estimated the average saver’s retirement balance at $1.1 million, while others put the figure at $1.9 million, reflecting the rising cost of living in the US.
“A million dollars isn’t what it used to be, but it can still provide a comfortable retirement if done right,”
Gates Little, president and CEO of the Southern Bank Company, previously told Fortune. That said, “if you’ve made $100,000 a year for most of your professional life, you’re probably accustomed to a much more comfortable lifestyle than a $1 million pension can provide.”
It’s also a relief after a dismal 2022. But investors have largely stayed on track, as this year’s recovery shows. That’s usually the best tactic, according to Fidelity.
“While everyone’s financial situation is different, Fidelity suggests taking a long-term approach to saving and avoiding changes based on short-term economic swings — positive or negative,” the report reads.
This story was originally on Fortune.com
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