Data released on Tuesday reveals that a significantly higher number of new 401(k) “millionaires” were created in the previous year compared to the year before, although the overall number still remains relatively low.
Fidelity Investments, one of the largest providers of workplace retirement plans covering 23 million 401(k) participants, reported strong performances in stocks and bonds in 2023, along with consistent savings rates and employer-provided matching contributions, resulting in a positive financial outlook for 401(k) investors by the end of the year.
According to Fidelity’s fourth-quarter data, the average 401(k) balance increased to $118,600 by the end of the fourth quarter, marking a 14% rise for the year. Among Gen Xers, a demographic cohort nearing retirement age, those who have consistently saved for at least 15 years saw their average 401(k) balance surpass $500,000.
Fidelity also noted a notable increase in the number of 401(k) accounts with balances of at least $1 million, rising by 20% in the fourth quarter to 422,000 accounts, and by 41% for the entire year. The average account balance for this group reached $1,551,300 in the fourth quarter.
While market performance played a significant role in boosting account balances, Fidelity highlighted the importance of actual savings habits. Approximately 27% of plan participants proactively increased their contribution rate throughout the year, and a substantial 78% of 401(k) savers contributed at a rate high enough to receive their employer’s full matching contribution, indicating a strong commitment to retirement savings.
Last year, the average savings rate, comprising both employee and employer contributions, stood at 13.9%, a slight increase from 13.7% the previous year.
Sharon Brovelli, president of Workplace Investing at Fidelity Investments, commented on the positive trend, stating, “This past year ended on a high note for retirement savers.” She noted the volatility experienced in 2023, ranging from market highs to lows, but emphasized the resilience of many retirement savers who remained committed to their long-term financial goals despite the fluctuations.
However, despite the encouraging data regarding 401(k) plans, a significant portion of the U.S. workforce is not benefiting from these positive trends. According to the Bureau of Labor Statistics, while 73% of civilian workers have access to employer-sponsored retirement plans, only 56% actually participate in them. This highlights a gap in retirement savings participation that may leave many workers financially vulnerable in the future.