Some super savers of the Gen -balance. save baby boomers.
Granted, every Gen Xer doesn’t have enough retirement money. We’re talking about long-term savers who consistently set aside significant amounts of their wages in 401(k) plans for 15 years. These savers are individuals who have been in the same Fidelity-managed 401(k) plan for an extended period of time, with the same employer, according to the latest Fidelity Investments research released Thursday.
After all these years of saving, this group of Gen Xers is looking at an average of over half a million dollars.
Over the long term, Gen The data does not reflect the entire 401(k) universe, but is based on 401(k) plans managed by Fidelity, the largest 401(k) platform in the country.
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Long-term Baby Boomer savers – those born between 1946 and 1964 – are looking at an average balance of $543,200.
So Gen Xers gain an extra $200 over Baby Boomers. It’s the first time that Gen
Well, here’s an important reality check: Many of these boomers are already retired and are spending their savings in retirement. And many Gen Xers are getting older and closer to retirement, so some are saving even more aggressively, says Michael Shamrell, vice president of thought leadership for workplace investing at Fidelity.
Individuals age 50 and older — the oldest Gen Xer will turn 59 in 2024 — can contribute an additional $7,500 to their 401(k) plans in 2024. That’s in addition to the maximum employee contribution of $23,000 to 401(k) plans for 2024.
The oldest boomers will turn 78 this year and are usually well into retirement. The baby boom group will range from 60 to 78 years old once their birthday is in 2024.
Some baby boomers, Shamrell said, may still be working, and they are saving aggressively. But many retired baby boomers could withdraw savings and spend their money in retirement. Some may also have shifted money from some 401(k) plans to other savings, including out-of-plan annuities, to provide an income stream in retirement.
Many retirees in their 70s must take at least some money out of their retirement savings each year to meet the complex required minimum distribution rules. The minimum amount required reflects a person’s age and retirement savings. And retirees can withdraw more than the minimum.
In 2020, the age limit for beginning to take required minimum distributions moved from age 70 ½ to age 72. The SECURE 2.0 Act later raised the age for required minimum distributions generally to 73 for those turning 72 in 2023 and beyond. If you reach age 73 in 2024, the Internal Revenue Service notes, the required start date for your first RMD is April 1, 2025 for 2024. Also, starting this year, Roth 401(k)s will no longer have RMDs.
From 2033, the RMD age will rise to 75 years.
Fidelity’s research shows that only 20% of retirees with money in a 401(k) will have made withdrawals in 2023. And, Fidelity noted, 94% of retirees age 73 and older who had money in a 401(k) made withdrawals in 2023.
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A big stock market rally boosted 401(k) plans
The rise to Dow 40,000 – the Dow Jones Industrial Average reached a record 40,003.59 points on May 17 – put many people on a better financial path.
Certainly, we may be experiencing what many are now calling a “Vibecession” – with many feeling pessimistic about the economy, higher prices, and yes, expressing concerns about their jobs and financial futures.
Overall, however, the jobs numbers and much of the 401(k) data say otherwise.
“We found the numbers overall very encouraging,” Shamrell said.
He noted that overall 401(k) savings rates hit a record high of 14.2%, which was driven by both employee and employer contributions.
The average 401(k) retirement account balance was $125,900 in the first quarter of 2024, up 6% from the fourth quarter last year, based on Fidelity data. The average was 16% higher than in the first quarter of a year ago.
The first quarter data is based on 23,900 corporate defined contribution plans and 23.3 million participants in these Fidelity-managed plans as of March 31.
In what could be a sign of anxiety and financial stress, 17.8% of workers had a 401(k) loan in the first quarter of 2024, compared to 16.7% in the first quarter a year ago. Still, that is a decrease compared to the 19.9% in the first quarter of 2019.
Although the 401(k) has many critics, the New York Times podcast “The Daily” asked last week, “Was the 401(k) a mistake?” – those who have been saving aggressively aren’t afraid to open their 401(k) statements lately.
◾ For baby boomers, the average balance was $241,200 in Fidelity 401(k) plans.
◾ For Gen X employees with a Fidelity plan, the average balance was $178,500.
◾ For millennials, born between 1981 and 1996, the average balance was $59,800.
◾ For Generation Z, born between 1997 and 2012, the average balance was $11,300.
Gen Z is just starting its career, with the oldest members being 27 years old.
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We’re still looking at far fewer than a million 401(k) millionaires
Only a small fraction of people can boast a seven-figure 401(k). But it’s a figure that’s talking some talk when Fidelity releases these numbers to its participants.
During the first quarter, the number of millionaires created by 401(k) reached an all-time high of 485,000 savers, according to Fidelity. It is an increase of 15% compared to the fourth quarter of last year. And, even more surprising, it’s a 43% increase from a year ago.
Do you want a really strange statistic? Let’s go back just over six years ago, when in the fourth quarter of 2017, about 150,000 people had $1 million or more in their 401(k) balance at Fidelity Investments. That was a record number at the time, compared to 93,000 people in the fourth quarter of 2017, the same period in 2016.
Typically, 401(k) savers reach millionaire status when they start saving early in their working years and consistently contribute as much as possible year after year after year. Many don’t panic and leave the market during an economic downturn. And they don’t typically take out loans through their 401(k) plans very often. It can also help if you work somewhere with a generous employer match.
Many 401(k)-generated millionaires took action to save a larger percentage of their income for retirement while continuing to work.
For example, in the first quarter, Fidelity noted that 401(k)-created millionaires have an average of 26 years of savings in their plans, and they have an average contribution rate of 17%.
Many have seen – and apparently survived – some pretty brutal times for the stock market in those 26 years – the implosion of the dot.com bubble in 2000, the stock market plunge following the September 11 terrorist attacks, the financial collapse of 2008, and the turmoil on Wall Street in the early days of the 2020 COVID-19 pandemic.
But many still saved consistently and didn’t try to time the market. “If people keep this up, they will keep themselves on track to achieve their goals,” Shamrell said.
Research shows that only 30% of small businesses offer a retirement savings benefit, Fidelity noted. But Shamrell said small businesses offering retirement savings options are seeing strong participation. The average retirement balance at small businesses with Fidelity plans is $152,000.
How much employees have saved can also vary by industry. This may reflect trends in how much workers in that industry are paid, the associated contributions, and the age of the workforce. Again, these balances reflect companies in those industries that have their 401(k) with Fidelity.
◾ The average 401(k) balance in the auto industry was $110,400, according to Fidelity data.
◾ The average balance in computer and electronic manufacturing was $204,500. The average construction balance was $87,100.
◾ In media and entertainment, the average balance was $124,300. In retail, the average balance was $51,200.
Some industries, such as retail, tend to have lower 401(k) balances because a younger workforce is changing jobs more often, according to Shamrell.
The 401(k) is not a theoretical exercise, especially as millions of savers moved closer to retirement age.
About 4.1 million Americans are expected to turn 65 in 2024, a record number. Many in this age group do not have traditional pensions and will tap into their savings.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tomorrow.
This article originally appeared on Detroit Free Press: 401(k) millionaires reach record numbers in the first quarter
