A new analysis by Fidelity Investments found that the number of 401(k) accounts with balances over $1 million rose by 9.5% in the third quarter. The average balance in this group was $1.616 million, up from $1.595 million in the prior quarter. The growth was attributed to a strong average savings rate of 14.1%, including employee contributions and employer matches.
However, not all 401(k) participants have such high balances. The average balance for all participant accounts hit a record high, but it was still just $132,300. The median balance was $30,600. Those with lower balances, particularly lower-income employees who may be disproportionately minorities, may be more likely to cash out their 401(k) savings when they change jobs, which can result in significant penalties and lost tax-deferred growth.
To address this issue, some 401(k) plans are implementing an auto-portability feature, which provides an automatic rollover service for those with small balances. This feature may become more common in the future, as nearly 26% of plans are considering it. Widespread adoption of auto-portability could preserve an estimated $1.6 trillion in additional retirement savings over 40 years, including $744 billion for minority job-changers.
Fidelity’s president of Workplace Investing, Sharon Brovelli, noted that consistent retirement contributions during various market cycles are important for setting Americans up for a future of financial wellness and security. The company’s data also showed that the average balance for Gen Xers who have been saving for at least 15 years was just under $600,000, up 6% from the previous quarter.