New York City – Many new 401(k) “millionaires” emerged last year, although the overall number remains relatively low, as per data released recently. The year 2023 saw strong stock and bond performances, along with consistent savings rates and employer-matched contributions, resulting in 401(k) investors ending the year on a positive note. Fidelity Investments, a major provider of workplace retirement plans for 23 million 401(k) participants, reported this information based on new fourth-quarter data.
The average 401(k) balance reached $118,600 by the end of the fourth quarter, marking a 14% increase from the previous year. Among Gen Xers, whose retirement is on the horizon, Fidelity noted that those saving for at least 15 consecutive years had an average 401(k) balance exceeding $500,000. Additionally, the number of 401(k) accounts with balances of at least $1 million rose by 20% in the fourth quarter, totaling 422,000 accounts, with a 41% increase throughout the year. The average account balance for this group amounted to $1,551,300 in the final quarter.
Market performance was not the sole contributor to the rise in balances; actual savings habits also played a significant role. Fidelity revealed that 27% of plan participants proactively increased their contribution rate over the past year, while 78% were contributing enough to receive their employer’s full matching contribution. The average savings rate last year, combining both employee and employer contributions, reached 13.9%, slightly up from the previous year. Sharon Brovelli, the president of Workplace Investing at Fidelity Investments, emphasized the commitment shown by many retirement savers in maintaining a long-term perspective despite market fluctuations in 2023.
Despite the positive trends in 401(k) plans, a considerable portion of the U.S. working population is not benefiting from them. The Bureau of Labor Statistics reported that while 73% of civilian workers had access to employer-sponsored retirement plans, only 56% actively participated in them. This highlights a gap in retirement planning that may impact individuals’ financial security in the future.