What is the best retirement savings account for you?
Although many Americans continue to face financial uncertainty due to the pandemic, the outlook for retirement savers is only improving.
Retirement account balances, which took a sharp nosedive in 2020 when the coronavirus outbreak caused economic shock waves, are now at new highs, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans.
The overall average 401(k) balance hit $129,300 as of June 30, up 24% from the same time last year, according to Fidelity.
Individual retirement account balances were also higher — reaching $134,900, on average, in the second quarter, up 21% from a year ago.
Despite Covid case numbers rising in the U.S. and around the world, the year’s market highs have been a boon for savers. In the second quarter, the S&P 500 ended up 8.2%, before retreating more recently.
Nearly 12% of workers increased their contributions during this time, while a record 37% of employers also automatically enrolled new workers in their 401(k) plans.
As a result, the number of 401(k) and IRA millionaires hit fresh highs, as well.
The number of Fidelity 401(k) plans with a balance of $1 million or more jumped to a record 412,000 in the second quarter of 2021. The number of IRA millionaires increased to 342,000, also an all-time high.
Together, the total number of retirement millionaires has nearly doubled from one year ago.
However, some savers still tapped their accounts to free up cash. The percentage of workers who made a withdrawal from their 401(k), including for hardship reasons, edged up to 5.1%, from 4.1% at the end of first quarter, which underscores the ongoing inequality of the pandemic recovery.
For the millions of Americans who are currently out of work and unable to benefit from the recent market gains, new opportunities may open up as labor shortages prompt employers to offer more generous benefits.
Some restaurants are even offering 401(k) accounts to their employees, which gives workers a leg up in saving for retirement and helps ensure they will stick around.
To give your retirement savings an extra boost, Jessica Macdonald, a vice president at Fidelity, recommends opting into an auto-escalation feature, if your employer offers it, which will automatically boost your savings rate by 1% or 2% each year.
And always contribute enough to get the full employer match, she said, “that way you won’t leave money on the table.”
Overall, aim to save 15% of your income in a retirement account, including the employer contribution, Macdonald also advised.
If you are over age 50, you set aside even more with catch-up contributions. (On top of the standard annual contribution limits — $19,500 for 401(k) plans and $6,000 for IRAs in 2021 — those who qualify can put an extra $6,500 in their 401(k) or $1,000 in their IRA.)
Finally, avoiding borrowing from these accounts at all costs. “Try to stash a little bit of money away in a rainy-day fund so you can dip into that instead,” Macdonald said.