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A Record Number of 401(k) Accounts Have Balances Over $1 Million, Fidelity Finds
A new analysis by Fidelity Investments has found that the number of 401(k) retirement plan accounts with balances over $1 million rose by 9.5% in the third quarter, with all told, 544,000 of the roughly 24 million participant accounts in the 401(k) plans for which Fidelity serves as record keeper having balances over $1 million, up from 497,000 in the second quarter. The average balance in that group was $1.616 million, up from $1.595 million in the prior quarter.
Among Gen Xers, who are next in line for retirement, those who have been saving for at least 15 years had an average balance of just under $600,000, up 6% from the quarter before, according to Fidelity data. The average balance for all participants who were saving for five, 10, or 15 years also rose during the quarter.
The growth was due not just to market gains, but also a strong average savings rate of 14.1%, which includes employee contributions (9.4%) and an employer match (4.7%). “We are continuing to observe a dedication to saving for retirement, with contributions to these vehicles holding steady if not increasing,” said Sharon Brovelli, president of Workplace Investing at Fidelity Investments. “Consistent retirement contributions during various market cycles is important … (since they) will help set Americans up for a future of financial wellness and security.”
However, many 401(k) participants’ balances are far below $1 million or even half that. The average balance for all participant accounts hit a record high, but it was still just $132,300, up 4% from $127,100 in the second quarter. The median balance, which represents the level below which half of the accounts had lower balances, was just $30,600.
Those with lower balances may be more likely to cash out their 401(k) savings when they change jobs, rather than rolling the money over into their new employer’s plan or a tax-advantaged IRA. Cashing out is costly, as it will be subject to income tax the year it’s taken and will also hit with a 10% early withdrawal penalty if the person taking the money is under 59-1/2.
Fidelity highlighted the issue and noted that 6,000 of the 26,000 401(k)s for which it serves as record keeper now have an auto-portability feature, which provides an automatic rollover service for those with small balances. This feature may become more common in the years ahead, with 6% of all plans having already implemented it or planning to soon, and nearly 26% considering it, according to the Plan Sponsor Council of America. If auto-portability were widely adopted, it could preserve an estimated $1.6 trillion in additional retirement savings over 40 years, including $744 billion for 98 million minority job-changers, according to the Portability Services Network.
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