401(k) millionaires hit record in second quarter, Fidelity says

The ranks of 401(k) and IRA millionaires again hit a record high in the second quarter at Fidelity Investments after stocks fully recovered from their losses suffered at the end of 2018.

The number of investors with at least $1 million in their 401(k) accounts rose to 196,000 at the end of the second quarter, up from 180,000 the previous quarter and surpassing the previous record of 187,400 reached in the third quarter of 2018, according to Fidelity.

The tally of IRA millionaires increased to 179,700 from 168,100 in the first quarter. The prior high was 170,400, also achieved in the third quarter of last year. Short for individual retirement account, an IRA is a tax-deferred personal retirement plan sponsored by the government.

That’s not all the milestones, either, according to Fidelity’s report released Wednesday. Contribution rates and increases also hit record levels.

Retirement balances

Average account balances also got a boost in the second quarter but fell short of setting records.

The average 401(k) account balance was $106,000, up 2% from $103,700 in the previous quarter and $500 short of the record high of $106,500 at the end of the third quarter.

The average IRA balance increased 3% to $110,400 in the second quarter from $107,100 in the previous quarter. It reached a high of $111,000 in the third quarter of 2018.

The increases in the latest three-month period reflect some of the gains in stocks during the quarter. The Dow Jones Industrial Average edged up 2.6% during the second quarter, while the Standard & Poor’s 500 index rose 3.8%.

Long-term gains

The balances also include a wide range of investors, some who are close to retirement and others who are just starting out.

The average doesn’t illustrate how gains can compound over time. It’s better to look at those with have been saving in the same accounts over 10 years.

Those decade-long savers have an average balance of $305,900, up 411% from $59,900 in the second quarter of 2009. Of that increase, about 38% was due to continued contributions – which may include a company match – while about 62% was because of market performance, Fidelity found.

Employers kicking in

Another factor helping Americans boost their retirement savings? Their employers. More than a third of employers now auto-enroll new employees into the company 401(k) plan, more than doubling in the last 10 years.

More are auto-enrolling at higher contribution rates as well. One in five employers set the default contribution rate at 6% or higher. About 44% set the default rate at just 3%, the most common setting but down from 60% from 2009.

“Many employers anchored on to that point, but it’s not really enough to fund retirement, even with a 3% match,” said Katie Taylor, vice president of thought leadership at Fidelity.

Fidelity recommends workers put away 15% – including company matches – during their working years to save enough for retirement.

Worker contributions

Employees also are helping themselves.

Almost a third upped their contribution rate in the second quarter, the highest amount ever. Two in five increased their rate themselves, while the remaining three in five benefited from automatic annual increases they sign up for.

The average percentage that employees contributed to their 401(k) accounts increased to 8.8%, a record high and a full percentage point more than 10 years ago. Employers who matched contributions kicked in 4.7% on average.

Taylor noted that adding the average employee contribution of 8.8% with the average employer contribution of 4.7%, you get a 13.5% contribution rate.

“For the first time ever, we’re getting really, really close to that 15% rate that Fidelity recommends,” Taylor said.