Wealth Management

401(k) millionaire ranks grew 11.5% in 2023. They are ‘poster children for staying the course,’ expert says

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In a year that defied most economists’ expectations, retirement savers reaped the benefits.

Retirement account balances, which took a sharp nosedive in 2022 due to market volatility, have now started to bounce back, according to the latest data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans. The financial services firm handles more than 45 million retirement accounts in total.

The average 401(k) balance ended 2023 up 14% from a year earlier to $118,600, Fidelity found.

The average individual retirement account balance also gained 12% year over year to $116,600 in the fourth quarter of 2023.

“This past year ended on a high note for retirement savers,” said Sharon Brovelli, president of workplace investing at Fidelity Investments.

Positive savings behaviors were key to realizing better outcomes, added Mike Shamrell, Fidelity’s vice president of thought leadership.

A great year for the major indexes also helped. The Nasdaq soared 43% in 2023, while the S&P 500 notched a 24% annual gain and the Dow Jones Industrial Average rose more than 13%.

Number of 401(k) millionaires jumps 11.5%

At the end of 2023, signs that inflation was cooling were not only good news for the economy but also good news for stocks. After the S&P 500 closed out 2023 with a nine-week win streak, the number of Fidelity 401(k) plans with a balance of $1 million or more increased 20% from the third quarter.

Year over year, the number of 401(k) millionaires rose 11.5%. 

“These are the poster children of staying the course and taking a long-term approach,” Shamrell said.

Overall, more than one third of retirement savers increased their retirement savings contributions, Fidelity found. The average 401(k) contribution rate, including employer and employee contributions, now stands at 13.9%, just below Fidelity’s suggested savings rate of 15%.

More retirement savers are borrowing from their 401(k)

Still, savers also tapped their accounts to free up cash. The percentage of workers who took a loan from their 401(k), including for hardship reasons, ticked up to 8.9%, from 7.8% at the end of 2022. 

Federal law allows workers to borrow up to 50% of their account balance, or $50,000, whichever is less. However many financial experts similarly advise against tapping a 401(k) before exhausting all other alternatives since you’ll also be forfeiting the power of compound interest

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At the same time, many households are also leaning heavily on credit cards to make ends meet, other research shows.

Across all ages and income levels, more than one third of adults have more credit card debt than emergency savings, according to a recent report by Bankrate.

“At a time of record high credit card rates, we see a record high number of Americans carrying credit card debt that exceeds their emergency savings,” said Greg McBride, chief financial analyst at Bankrate.

In times of financial stress, it may make sense to borrow from a retirement account, rather than rely on such high-interest debt, according to Fidelity’s Shamrell.

“If you have been in a financial bind and the choice is high-interest credit card or a loan from your 401(k), sometimes the loan is your optimal choice,” he said.

“But that’s in a time of real financial need,” he added, “not going to your college roommate’s wedding in Napa.”

Unlike credit card and other debt, savers who borrow from their 401(k) pay themselves back with interest. Interest rates are also generally much lower than those of credit cards, which are currently at a record high over 21%.

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