Retirement account balances hit record levels in Q4 2020, according to a recent survey released by Fidelity. More good news: one-third of 401(k) savers increased their savings rate in 2020, while contribution rates for women in 401(k), 403(b) and IRA accounts hit record levels.
The end result: the number of 401(k) millionaires shattered records, thanks to a combination of a solid stock market performance and strong savings habits ingrained over years of practice.
Read more in this recent article that appeared in 401k Specialist:
Fidelity: Retirement Balances (and 401k Millionaires) Hit Record Levels in 2020
Despite ongoing economic uncertainty, Fidelity Investments reports today that individual contributions to all three retirement account platforms remained strong in Q4 2020, which helped boost average retirement account balances to record levels for the quarter.
Fidelity’s quarterly analysis of retirement savings trends includes account balances, contributions and savings behaviors across more than 30 million 401k, 403b and IRA retirement accounts.
More good news from the report reveals that one-third of 401k savers increased their savings rate in 2020, and contribution rates for women reached record levels in Q4 2020.
Oh, and the number of 401k millionaires at Fidelity? That record was absolutely shattered in Q4, with 334,000 cracking seven-figure account balances, well above the previous high of 262,000 set in Q3 2020 (and 101,000 more than a year ago).
IRA millionaires at Fidelity were also at an all-time high at the end of 2020, with 288,000 compared to the previous high of 234,000 at the end of Q3 2020 an 80,000 more than a year ago.
Boost from strong stock market
And while ongoing financial challenges created by the global pandemic drove a slight increase in the number of withdrawals under the CARES Act in Q4, the amount withdrawn was consistent with withdrawals earlier in 2020.
“The stock market results in Q4 played a part in boosting average account balances to record levels, but we’re encouraged to see how positive saving behaviors among our retirement investors also contributed to increased balances,” said Kevin Barry, president of Workplace Investing at Fidelity Investments.
“Taking a long-term approach to retirement savings, which includes consistent savings efforts and managing asset allocation, can help investors weather the economy’s ups and downs,” Barry said. “Last year was challenging and we still may have rough patches ahead, so it’s more important than ever to stay the course and keep focused on the key steps that will help investors reach their retirement goals.”
Reaching record levels
A closer look at the report’s key highlights:
- Retirement accounts reach record levels in Q4. The average 401k balance increased to $121,500 in Q4, an 11% increase from Q3 and up from 8% from a year ago. The average 403b account balance increased to a record $106,100, an increase of 10% from last quarter and the first time the average TEM balance has reached six figures. The average IRA balance was $128,100, a 9% increase from last quarter and 11% higher than average balance of $115,400 a year ago.
- Employee savings rates reached record levels. Despite the ongoing financial uncertainty, individuals continued to save in their workplace savings accounts. The average quarterly savings rate for 401k accounts reached 9.1% and savings rate for 403b accounts was 7.3%, both record levels. When combined with employer contributions, the total savings rate (employee + employer contributions) for 401k accounts was 13.5%, and 11% for 403b accounts. Across Fidelity’s 401k platform, one in three (33%) individuals increased their contribution rate at some point in 2020.
- Gen Z workers increasingly investing in their 401k. More than 800,000 Gen Z workers had joined Fidelity’s 401k platform by the end of 2020, an increase of 10% from the end of 2019. The average balance for this group was $5,800 in Q4, an increase of 13.3% over the previous quarter.
- New IRA accounts, contributions continue to increase. Individuals continued to utilize IRAs to help save for retirement, as the number of IRAs accounts that received a contribution increased 35% in 2020, with the average contribution per account increasing 5% over last year. The percentage of contributions to Roth IRAs continues to increase, rising to 58.7% of all IRA contributions in 2020. And while the number of IRAs increased across Millennials, Gen X and Baby Boomers, the number of IRAs among Gen Z investors nearly tripled in 2020 to more than 114,000 accounts.
- Withdrawals under CARES Act increased, but withdrawal amount remained steady. Withdrawals under the CARES Act remained steady throughout most of 2020, although withdrawals increased slightly in December. From March to the end of 2020, 1.6 million individuals had taken a CARES Act distribution from their retirement account, which represents 6.3% of eligible employees on Fidelity’s workplace savings platform. The majority of individuals (59%) took one withdrawal in 2020 and the overall average amount per withdrawal was $9,400 (the median amount per withdrawal was $2,500). And while required minimum withdrawals (RMDs) were suspended in 2020 in the CARES Act, the RMD requirement has been reinstated for 2021, meaning older investors (over age 72) will need to take a distribution or possibly face an IRS penalty.
Women investors make strides
Women investors, which represent roughly 40% of Fidelity’s 401k platform and 70% of its 403b platform, saw solid gains in 2020 despite some unique challenges as a result of the global pandemic. Recent Fidelity research found that nearly 4-in-10 working women (39%) are actively considering leaving the workforce or reducing their hours due to increased caregiving responsibilities—however, Fidelity’s Q4 analysis identified several positive aspects of women’s retirement savings efforts:
- Increasing savings rates. Women are saving more for retirement than ever before, with the average 401k savings rate for women climbing to a record 9%, up from 8.7% a year ago, while the 403b savings rate for women increased to a record 7.6%, up from 6.2% in Q4 2019. When combined with employer contributions, the total savings rate (employee + employer contributions) climbed to 13.3% for women saving in their 401k and 11.4% for women saving in their 403b. Among women investors saving in an IRA, the average contribution amount in 2020 increased 4% over the average contribution amount in 2019.
- Average 401k balance for long-term savers exceeds a quarter of million dollars. The average 401k account balance for women who have been in their plan for 10 years straight increased to $297,900, up from $249,200 a year ago. As of Q4, there are 523,000 women on Fidelity’s platform who have been in the same 401k plan since Q4 2011, when the average balance for this group was $61,800.
- Increasing use of target date funds. More than half (59.8%) of women on Fidelity’s 401k platform have all of their savings in a target date fund, and the percentage increases to 71.4% of women on Fidelity’s 403(b) platform.
“Despite the unprecedented challenges posed by the pandemic, we continued to see women investors stay engaged and continue to take the steps to keep their retirement savings moving in the right direction,” Barry added.
This article was originally published in 401(k) Specialist on February 18, 2021.