More people could retire as millionaires.
The number of people with $1 million or more saved in their 401(k) accounts jumped 10% from April to the end of June, according to Fidelity Investments. There was also a 13% share of millionaires with IRA accounts held at the company during the same time frame.
And it’s not just the new millionaires who have something to say. For the third consecutive quarter, Fidelity reported an increase in retirement account balances for all savers. This is according to the company’s second quarter analysis From the savings account balances of more than 45 million retirement accounts, 401(k), and 403(b) accounts.
Many factors played a role in the gains, including the ability to stick to saving for the long term for security in their golden years.
“Overall, the increase in balances (for all investors) was based on continued employer and employee contributions, along with positive market performance.” Michael Shamrill, vice president of workplace thought leadership at Fidelity, tells Yahoo Finance.
“The increase we’re seeing in 401(k) millionaires this quarter[also]shows the value of a long-term investment.”
In the first half of the year, the number of people who hit that amazing 1 million goal increased by almost 20%.
In all, there were 378,000 retirement savers in Fidelity 401(k) plans that netted seven-figure balances and beyond as of June 30, up from 340,000 at the end of March and 299,000 at the end of December. There were 350,000 millionaire IRAs on June 30, up from 307,623 at the end of March and 280,320 at the end of December.
However, those numbers don’t quite reach their peak, which was 442,000 for 401(k) millionaires at the end of 2021 and 376,100 for IRA millionaires in the same quarter when the S&P 500 just finished nearly 27th. % for 12 months.
In general, all retired savers did better.
The average 401(k) account balance was $112,400 on June 30, up from From $103,900 At the end of December. The average IRA account balance was $113,800, up from $104,000 at the end of last year. In fact, boomers now have an average balance of just under half a million dollars ($499,700), Fidelity reports.
The larger balances came from a combination of a few factors.
First, a stronger stock market – the S&P 500 is up more than 15% from January through the end of June. That helped, but the account’s performance wasn’t on par with the market’s strong gains because many Fidelity accounts are invested in target-date funds that aren’t designed to match or exceed stock market returns. Instead, it aims to provide steady earnings through a mix of stock and bond investments until your target retirement date.
In fact, in the second quarter, more than half of Fidelity 401(k) participants kept all of their savings in a professionally managed target-date fund.
“Very few 401(k) accounts are all stock, which means they won’t track the S&P,” Shamrill said. In addition, the general average also includes the balances of older workers, which will be more conservative. For example, the average account balance increased by only 6.3%.”
People also benefited from a ripple of automatic retirement plan enrollments and automatic escalation of contributions that kept workers’ investment flows in a steady cadence — regardless of market performance.
About one in four employers are now offering automatic enrollment and the average employer default contribution rate (the amount paid into your retirement account if you don’t make your choice) is at an all-time high of 4.1%, according to the report.
Another explanation for some of the uptick in balances: Many student loan borrowers have used the student loan payment pause to focus on retirement savings, with 72% of student loan borrowers contributing at least 5% to their 401(k), compared to just 63% before the payment pause, According to Fidelity data.
401(k) millionaire saving secrets
New Millionaires Club members are no ordinary savers. A Fidelity breakdown shows that, on average, they save 17.2% of their salary. Their employers contribute an additional 9.3% to their retirement accounts for a total savings rate of 26.5%.
Few workers could match this kind of noble level. However, they are trying. Fidelity found that the total 401(k) savings rate for the first half of this year — a combination of matching contributions from employees and employers — was roughly 14%. This is a touch higher than last year’s rates of 13.7% and 13.8%.
The average age of a millionaire in a retirement account is 59, and they’ve been chipping away at savings for decades. Boomers made up more than half (52.2%) of Fidelity’s millionaires with Gen X hot on their heels at 45.5%, while Millennials accounted for just 0.5%.
What’s more, these millionaires likely saved for retirement more than Fidelity has with additional money invested in retirement accounts held at other financial services firms, such as IRAs created with a carry-over from a previous employer’s plan.
“The average savings period of our saving millionaires is 26 years. This shows that continuing to invest for the long term can lead to huge profits over time, especially during positive market shifts,” Shamrill added.
Don’t stop thinking about tomorrow
In fact, while saving a million dollars for retirement seems like a luxury, that doesn’t mean it’s time to call it a day by any means.
When you consider future market volatility and the possibility of financing three decades of living expenses in retirement, financial experts advise that this is not the time to hold onto your horses.
“Achieving major milestones is very motivating,” Mariel Beasley, co-founder of Common Cent Lab at Duke University for Yahoo Finance.
“But usually, motivation increases as you get closer to the stage or goal. This means that people with a balance of $990,000 may actually be more motivated to keep saving or increase their savings than people who have a balance of $1,010,000 now.”
This may require some self-searching for this new class of loyal millionaires.
“Becoming a millionaire can have a profound effect on how people see themselves and how they behave,” Paisley said. First, spending may increase because they feel richer. Or it may increase savings because they see themselves as a successful saver and want to continue to build on that success.”
Kerry Hannon is a senior correspondent and columnist for Yahoo Finance. She is a workplace futurist, career and retirement strategist, and author of 14 books, including “In Control at 50+: How to Succeed in the New World of Work » and “Don’t get old till you’re rich.” Follow her on Twitter @employee.
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