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Fidelity: 401(k) Account Balances Rebound to Record Levels

Industry Trends and Research

Despite economic uncertainty, ongoing individual contributions remained strong, helping to boost average retirement account balances to record levels during the fourth quarter of 2020. 

According to Fidelity Investments’ quarterly analysis of retirement savings trends, the average 401(k) balance increased to $121,500 in the fourth quarter, an 11% increase from the previous quarter and up 8% from a year ago. Furthermore, the average 403(b) account balance increased to a record $106,100, an increase of 10% from last quarter and the first time the average balance has reached six figures. The average IRA balance was $128,100, a 9% increase from last quarter and 11% higher than average balance of $115,400 a year ago. 

“The stock market results in Q4 played a part in boosting average account balances to record levels, but we’re encouraged to see how positive saving behaviors among our retirement investors also contributed to increased balances,” says Kevin Barry, president of Workplace Investing at Fidelity Investments. “Last year was challenging and we still may have rough patches ahead, so it’s more important than ever to stay the course and keep focused on the key steps that will help investors reach their retirement goals.” 

Savings Rates

Despite the ongoing financial uncertainty, individuals continued to save in their workplace savings accounts, reaching record levels. According to the report, the average quarterly savings rate savings rate for 401(k) accounts reached 9.1% and for 403(b) accounts was 7.3%, both record levels. 

When combined with employer contributions, the total savings rate for 401(k) accounts was 13.5%, while the total savings rate for 403(b) accounts was 11%. What’s more, across Fidelity’s 401(k) platform, one in three (33%) individuals increased their contribution rate at some point in 2020.

And move over Millennials, as Gen Z workers are increasingly investing in their 401(k). Fidelity reports that more than 800,000 Gen Z workers had joined the firm’s 401(k) platform by the end of 2020, an increase of 10% from the end of 2019. The average balance for this group was $5,800 in the fourth quarter—an increase of more than 13% over the previous quarter.

CARES Act Withdrawals

While ongoing financial challenges created by the global pandemic drove a slight increase in the number of withdrawals under the CARES Act in the fourth quarter, the amount withdrawn was consistent with withdrawals earlier in 2020, Fidelity notes. 

From March to the end of 2020, 1.6 million individuals had taken a CARES Act distribution from their retirement account, which represents 6.3% of eligible employees on Fidelity’s workplace savings platform. 

Most individuals (59%) took only one withdrawal in 2020 and the overall average amount per withdrawal was $9,400 (the median amount per withdrawal was $2,500). Fidelity reminds that, while required minimum withdrawals (RMDs) were suspended in 2020 under the CARES Act, the requirement has been reinstated for 2021. 

Women See Gains

Representing roughly 40% of Fidelity’s 401(k) platform and 70% of the firm’s 403(b) platform, women investors also saw solid gains in 2020 despite some unique challenges because of the pandemic. 

While nearly 4 in 10 working women (39%) are considering leaving the workforce or reducing their hours due to increased caregiving responsibilities, the firm’s fourth quarter analysis identified several positive aspects of women’s retirement savings efforts. 

Higher savings rates: The average 401(k) savings rate for women climbing to a record 9%, up from 8.7% a year ago, while the 403(b) savings rate for women increased to a record 7.6%, up from 6.2% in the fourth quarter of 2019. When combined with employer contributions, the total savings rate climbed to 13.3% for women saving in their 401(k) and 11.4% for women saving in their 403(b). 

Average 401(k) balance for long-term savers nearly $300,000. The average 401(k) account balance for women who have been in their plan for 10 years straight increased to $297,900, up from $249,200 a year ago. As of the fourth quarter, there are 523,000 women on Fidelity’s platform who have been in the same 401(k) plan since 2011, when the average balance for this group was $61,800.

Increasing use of target date funds. Nearly 60% of women on Fidelity’s 401(k) platform have all their savings in a target date fund, and the percentage increases to more than 71% of women on the firm’s 403(b) platform. 

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