The number of 401 (k) and IRA millionaires hits a record one year after Covid, says Fidelity
While the pandemic is not over yet, many retirement accounts are back to pre-Covid highs.
According to the latest data from Fidelity Investments, the nation’s largest provider of 401 (k) savings plans, the balances in retirement accounts, which took a sharp nosedive almost exactly a year ago when the coronavirus outbreak caused economic shock waves, are now completely down recovered.
And despite the three days of losses in the past few days, the market run-up has been a boon for savers.
From January 2020 through the beginning of this month, the S&P 500 achieved an annual return of more than 20%, according to Morningstar Direct.
This has helped bring average retirement account balances to record levels, even surpassing previous highs just before the pandemic.
According to Fidelity, the average total of 401 (k) in the first quarter of 2021 was $ 123,900.
Approximately 17% of employees increased their contributions during this time, more than any other previous quarter, while a record 37% of employers automatically added new employees to their 401 (k) plan.
And fewer savers tapped their accounts to release cash. The percentage of workers who withdrew from their 401 (k), including hardship withdrawals, decreased from 6.1% at the end of 2020 to 2.4%.
Record number of 401 (k) and IRA millionaires
Thanks to a bull market and the increase in savings, the number of 401 (k) and IRA millionaires hit a record high.
The number of Fidelity 401 (k) plans with a balance of $ 1 million or more rose to a high of 365,000 in the first quarter of 2021. The number of IRA millionaires rose to 307,600, also an all-time high.
Overall, the total number of pensioner millionaires has more than doubled compared to the previous year.
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According to Jessica Macdonald, vice president of Fidelity Investments, those who hit the $ 1 million mark are likely to put away far more than the average employee and employer contribution rate of nearly 14% and for an extended period of time.
“These are people who have made it their goal to do as much as possible with these retirement accounts,” she said. “It’s not something that happens overnight, it’s really an example of staying on course and taking a long-term approach.”
They also tend to hold more stocks, Macdonald added, which have done particularly well over the past year.
The inequality sparked by stock market performance was a hallmark of the rebound from the pandemic, which was marked by job losses for the lower and rising wealth for the upper.
This so-called K-shaped recovery has nearly divided the nation in half, with the richest Americans doing even better than before while millions have faced more setbacks.
To increase your bottom line, Macdonald recommends contributing at least enough to take full advantage of an employer match and opting for an automatic escalation feature if your company offers it, which automatically increases your savings rate by 1% or 2% is increased.
Then create a separate emergency money savings account. “So if you’re stuck in traffic, you can tap this instead of your defined contribution plan,” Macdonald said.
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