Last month we learned that Americans continue to have a highly-favorable opinion of their tax-advantaged 401(k) plans, in part because consistent participation can lead to substantial growth in one’s retirement nest egg. This is supported by an updated Fidelity Investments analysis which found that the average account balance for workers who have been in their company’s 401(k) plan for fifteen consecutive years ended 2019 at $421,700. That is a 632 percent increase since 2004 for this group of participants, but even workers who only more recently became persistent with their contributions have been able to achieve significant growth in their retirement assets.
For example, Millennials who continuously invested in their employer’s defined contribution (DC) plan for just the past 10 years have already amassed an average 401(k) balance of $149,800, an all-time high for this data series. Although the near record-long bull market of the past decade (which has weathered dozens of corrections similar to last week’s selloff) has obviously supported the rapid growth in retirement account balances, the strong economy has arguably played a much bigger role in helping Americans prepare for a comfortable and financially secure retirement. Indeed, rising incomes and a greater number of jobs that provide access to 401(k) plans with accompanying matching contributions are welcome side-effects of a tight labor market, and workers appear more than willing to take advantage of this favorable environment. The average total savings rate (employee contributions + company match) among all 401(k) participants in Fidelity’s sample, for instance, jumped to 13.5 percent in 2019.
Further, the combined dollar value increase in per annum contributions has risen by $1,580 in just the past five years. With this combination of a continued increase in persistent saving and a resilient stock market it should not be too surprising that the number of 401(k) participants with $1 million or more in their account increased to a record 233,000 in 2019, up from just 21,000 in 2009. Fidelity’s Kevin Barry added that “The growth in savings levels over the last 10 years demonstrates the positive impact of taking a long-term approach to retirement. … However, as we enter a new decade and continue to see markets rise and fall, it’s more important than ever to remember some of the important elements of a successful retirement strategy – these include maintaining positive savings habits, ensuring your account has the right balance of stocks, bonds and cash, and continuing to focus on your long-term savings goals.”
Sources: Fidelity Investments, IBD
Post author: Charles Couch