401(k): savers of retirement funds profited in a year that surprised most economists. According to the most recent data from Fidelity Investments, the largest 401(k) savings plan provider in the nation, retirement account balances have recently started to rise again following a severe decline in 2022 due to market volatility. In total, the financial services company manages over 45 million retirement accounts.
According to Fidelity, the average 401(k) balance at the end of 2023 was $118,600, up 14% from the previous year.
In the fourth quarter of 2023, the average amount in an individual retirement account increased by 12% year over year to $116,600.
“Retirement savers ended the year on a high note,” according to Fidelity Investments’ president of workplace investment, Sharon Brovelli.
Better results may only be achieved by adopting positive saving habits, according to Mike Shamrell, vice president of thought leadership at Fidelity.
A strong year for the main indices was also beneficial. In 2023, the Dow Jones Industrial Average gained almost 13%, the S&P 500 saw an annual gain of 24%, and the Nasdaq surged 43%.
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Millionaires in 401(k) plans increase by 11.5%
By the end of 2023, indications of a slowing inflation rate were positive for the economy and for markets as well. The number of Fidelity 401(k) plans with a balance of $1 million or more rose by 20% from the third quarter of 2023, following the S&P 500’s nine-week winning streak.
There were 11.5% more 401(k) millionaires this year than there were last.
According to Shamrell, “these are the poster children of perseverance and long-term thinking.”
According to Fidelity, over one-third of retirement savers increased their contributions overall. With company and employee contributions combined, the average 401(k) contribution rate is currently 13.9%, which is slightly below than Fidelity’s recommended savings rate of 15%.
An increasing number of retirees are taking out loans from their 401(k)
But savers also took money out of their accounts to make ends meet. By the end of 2022, the proportion of employees who borrowed from their 401(k), even for financial difficulties, increased slightly to 8.9% from 7.8%.
Employees may borrow up to $50,000, or 50% of their account balance, whichever is less, according to federal law. Nonetheless, a lot of financial advisors also advise avoiding accessing a 401(k) before trying every other option because you’ll also be giving up the opportunity to benefit from compound interest.
According to additional data, a lot of households are also using credit cards excessively to get by.
According to a recent Bankrate research, over one-third of adults, regardless of age or income level, have more credit card debt than emergency reserves.
Greg McBride, chief financial analyst at Bankrate, “we see a record-high number of Americans carrying credit card debt that exceeds their emergency savings at a time of record-high credit card rates.”
According to Fidelity’s Shamrell, borrowing from a retirement account instead of depending on high-interest debt can make sense in tight financial circumstances.
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“There are times when taking out a loan from your 401(k) or a high-interest credit card is the better option if you’ve been in a tight spot financially,” he added.
“But that’s not going to your college roommate’s wedding in Napa; that’s in a time of real financial need,” he continued.
Saver debt is paid back with interest, unlike credit card debt and other types of debt. In addition, interest rates are often far lower than credit card interest rates, which are currently at an all-time high of more than 21%.
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