Recent stock market gains have prompted a significant increase in the number of retirement savers reaching the milestone of a $1 million 401(k) balance.
In the fourth quarter, Fidelity Investments reports seeing a 20% increase in the number of 401(k) millionaires. Compared to the fourth quarter of 2022, the number increased by 11.5%.
“Retired savers ended the year on a positive note, with improved market conditions and consistent contributions helping to boost average account balances to the highest level in nearly two years,” Fidelity said in a report.
The S&P 500 index has been rising strongly since November and reached new all-time highs in February. The large-cap stock index has risen about 27.5% over the past year as inflation has eased and other economic conditions have improved. The Nasdaq and Dow Jones indexes rose 39.7% and 19.2% respectively.
Average 401(k) balances are rising sharply
According to Fidelity, the largest 401(k) provider in the United States, the average 401(k) balance is $118,600, which is a 14.1% increase from the fourth quarter of 2022.
Americans often invest their 401(k)s in mutual funds or ETFs, which can include stocks and bonds.
The strong performance of the stock market has increased the value of holdings in these accounts. The other factor is an increase in contributions: In 2023, 37% of Fidelity 401(k) savers increased their retirement contribution rate.
According to Fidelity, the average total savings rate, which includes employer contributions, is 13.9%.
Fidelity experts say positive trends in 401(k) balances are a reminder of the importance of long-term investing and patience with your 401(k). There will be tough years for 401(k)s like 2022, but over the long term, balances generally go up.
“2023 has given us the highest of highs and the lowest of lows, but, encouragingly, many retirement savers have taken a long-term view and stayed the course through it all,” said Sharon Brovelli, president of workplace investing at I work at Fidelity Investments. relationship.
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