The stock market rally that has lifted the S&P 500 index by more than 17% this year has also boosted the retirement savings of many Americans. According to a report by Fidelity Investments, the number of 401(k) accounts with a balance of at least $1 million reached a record high of 412,000 in the second quarter of 2023, up 21% from the previous quarter and 84% from a year ago.
How the Stock Market Rally Helped Savers?
The strong performance of the stock market, especially in sectors such as technology, health care, and consumer discretionary, has been a key factor behind the growth of 401(k) millionaires. The S&P 500 index, which tracks the performance of 500 large-cap U.S. companies, gained 8.6% in the second quarter and 17.2% in the first half of the year, marking its best start since 1998.
According to Fidelity, the average 401(k) account balance increased by 4% in the second quarter to $129,300, while the average individual retirement account (IRA) balance rose by 3% to $125,200. Both figures were up by more than 40% from a year ago, when the coronavirus pandemic caused a sharp drop in the stock market.
Fidelity also noted that savers continued to contribute to their retirement accounts despite the economic uncertainty caused by the pandemic. The average 401(k) contribution rate remained at 9.3% in the second quarter, while the average IRA contribution rate increased to 7.6%, up from 7.4% in the first quarter.
How Savers Can Become Millionaires?
While the stock market rally has helped many savers reach the $1 million mark, Fidelity said that there are other factors that can help savers achieve their retirement goals. These include:
- Starting to save early and consistently. Fidelity found that among the 401(k) millionaires, the average age at which they started saving was 26, and they had been saving for an average of 30 years.
- Diversifying their portfolio and taking advantage of employer matching contributions. Fidelity said that among the 401(k) millionaires, 88% had a diversified portfolio that included stocks, bonds, and cash, and they received an average employer contribution of 5.1% of their salary.
- Increasing their savings rate over time and avoiding taking loans or withdrawals from their accounts. Fidelity said that among the 401(k) millionaires, the average savings rate (including employer contributions) was 16.4%, and only 2% had an outstanding loan or had taken a withdrawal in the past year.
How Savers Can Protect Their Savings?
While reaching the $1 million mark is a milestone for many savers, Fidelity warned that it may not be enough to ensure a comfortable retirement for everyone. The amount of money that savers need to retire depends on various factors such as their lifestyle, health care costs, inflation, taxes, and longevity.
Fidelity suggested that savers should review their retirement plan regularly and adjust their savings rate, asset allocation, and withdrawal strategy according to their changing needs and goals. Fidelity also recommended that savers should consult a financial professional or use online tools such as Fidelity’s Retirement Score Calculator to assess their retirement readiness and get personalized guidance.
