Number of 401(k) and IRA millionaires hits record one year after Covid, Fidelity says
- Thanks to the market's recent run-up and increased savings, retirement account balances have now surpassed pre-Covid highs.
- The number of 401(k) and IRA millionaires also hit an all-time record in the first quarter of 2021, according to Fidelity.
Retirement account balances, which took a sharp nosedive almost exactly one year ago when the coronavirus outbreak caused economic shock waves, have now bounced back entirely, according to the latest data from Fidelity Investments, the nation's largest provider of 401(k) savings plans.
And despite three recent days of losses, the market's run-up has been a boon for savers.
From January 2020 to the beginning of this month, the S&P 500 has had an annual return of more than 20%, according to Morningstar Direct.
That has helped propel average retirement account balances to record levels, surpassing even the previous highs reached right before the pandemic.
The overall average 401(k) balance hit $123,900 in the first quarter of 2021, according to Fidelity.
Roughly 17% of workers increased their contributions during this time, more than any previous quarter, while a record 37% of employers also automatically enrolled new workers in their 401(k) plans.
And fewer savers tapped their accounts to free up cash. The percentage of workers who made a withdrawal from their 401(k), including for hardship reasons, dropped to 2.4%, down from 6.1% at the end of 2020.
Thanks to a bull market and the boost in savings, the number of 401(k) and IRA millionaires hit a record.
The number of Fidelity 401(k) plans with a balance of $1 million or more jumped to a high of 365,000 in the first quarter of 2021. The number of IRA millionaires increased to 307,600, also an all-time high.
Together, the total number of retirement millionaires has more than doubled from one year ago.
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Those who have hit the $1 million mark are likely putting away much more than the average combined employee and employer contribution rate of nearly 14% and over a longer period, according to Jessica Macdonald, a vice president at Fidelity Investments.
"These are people making it a goal to do as much as possible with these retirement accounts," she said. "It's not something that happens overnight, it's really an example of staying the course and taking a long-term approach."
They also tend to hold more equities, Macdonald added, which have performed particularly well over the last year.
Inequality fueled by the stock market's performance has been a hallmark of the pandemic recovery, marked by job loss for those at the bottom and soaring wealth for those at the top.
This so-called K-shaped recovery has split the nation nearly in half, with the wealthiest Americans faring even better than before, while millions more have faced setbacks.
To boost your bottom line, Macdonald recommends contributing at least enough to take full advantage of any employer match and opting into an auto-escalation feature, if your company offers it, which will automatically boost your savings rate by 1% or 2% each year.
Then, create a separate savings account for emergency money, "so if you do find yourself in jam, you can tap that instead of your defined contribution plan," Macdonald said.
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