The American Dream is evolving, and for many, it now includes achieving the status of a 401(k) millionaire. Recent data from Fidelity Investments reveals a significant uptick in the number of individuals who have crossed this threshold, painting a picture of resilience and strategic financial planning.
As of the close of December, Fidelity reported a 20% increase in the number of 401(k) account holders with balances of $1 million or more, compared to figures from September. This surge brought the total to 422,000 savers, a notable rise from the 349,000 at the end of September and 299,000 at the end of 2022. Similarly, IRA millionaires also saw an increase, with 391,562 individuals reaching this milestone, up from 338,725 at the end of September and 280,320 at the end of December 2022.
Michael Shamrell, Fidelity’s vice president of thought leadership, expressed optimism, stating, “We are encouraged to see retirement balances increase so dramatically this quarter, reflecting the improving market conditions and enabling retirement savers to see significant gains in their account balances and retirement preparedness.” This sentiment underscores the positive impact of market performance on individual retirement accounts.
The end of the year marked a high point for average account balances, reaching their highest levels in nearly two years. This financial boon was further bolstered by the fact that over a third of workers increased their retirement savings contributions in 2023. Fidelity’s analysis, which encompassed over 45 million retirement accounts, highlighted the proactive steps taken by savers to secure their financial futures.
The stock market’s robust performance in the last year, with the S&P 500 index up 26.3% and the Dow Jones Industrial Average up 13.7%, played a significant role in the growth of retirement savings. However, the increase in balances was not solely due to market gains. A combination of factors, including higher contribution rates and employer matching, contributed to this success. By the end of 2023, 78% of 401(k) savers were contributing at a rate sufficient to receive the full employer match, with the total average savings rate for the fourth quarter at approximately 14%.
The profile of the typical 401(k) millionaire is also emerging. With an average savings tenure of 26 years and an average age of 59, these individuals exemplify the benefits of long-term, consistent investing. Nearly half of the millionaires are baby boomers, closely matched by Gen Xers, while millennials represent a mere 0.8%.
These millionaires are not just saving; they’re saving aggressively. On average, they set aside 17.5% of their pay, with employers contributing an additional 9%, resulting in a total savings rate of 26.6%. This disciplined approach to saving is a cornerstone of their financial success.
Reaching millionaire status is not a signal to coast. Financial experts advise maintaining a steady course of action, regardless of market highs or lows. For those nearing retirement, it may be prudent to rebalance portfolios and shift some funds into more stable, short-term vehicles like money market accounts.
The journey to becoming a 401(k) millionaire is a testament to the power of compound interest, regular contributions, and the benefits of employer matching and profit sharing. As the maximum contribution limits continue to rise, the opportunity for savers to accelerate their wealth-building efforts grows.
The rise in 401(k) millionaires is a beacon of hope for diligent savers. It underscores the importance of longevity in the market, the impact of strategic saving, and the potential for anyone to achieve a secure and prosperous retirement. As we look to the future, the path to financial independence seems more attainable than ever, with the right mix of patience, persistence, and financial acumen.
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