Despite the Great Resignation, saving for retirement is still very much a priority, as Fidelity’s IRA and DC plan savers set new records in 2021.
Assisted by strong market gains and employers helping to keep workers on track, Fidelity Investments’ 2021 year-end analysis of more than 35 million IRA, 401(k) and 403(b) accounts finds that the average 401(k) balance climbed to a record $130,700 in the fourth quarter, up 4% from the third quarter and 8% from a year ago.
Similarly, the average 403(b) account balance increased to a record $115,100, an increase of 4% from last quarter and an 8% increase from the fourth quarter of 2020.
“Despite facing a variety of financial hurdles in 2021, including ongoing market uncertainty and a shifting employment landscape, investors did not let the events derail their efforts and continued to stay focused on the key fundamentals of retirement savings,” Kevin Barry, President of Workplace Investing at Fidelity Investments, said in a statement. “By making regular contributions to retirement accounts, not cashing out savings when they change jobs and taking advantage of their employer's contributions, individuals were able to keep their savings on track as we head into 2022.”
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Average Retirement Account Balances |
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|
|
Q4 2021 |
Q3 2021 |
Q4 2020 |
Q4 2011 |
|
IRA |
$135,600 |
$135,700 |
$128,100 |
$69,500 |
|
401(k) |
$130,700 |
$126,100 |
$121,500 |
$69,400 |
|
403(b) |
$115,100 |
$110,800 |
$106,100 |
$53,700 |
Contribution Increases
Fidelity also found that more than a third of workers increased their 401(k) and 403(b) savings rates. According to the firm’s data, a record 38% of individuals increased their 401(k) contributions in 2021, with an average increase of more than 3%.
Among Gen Z workers, 53% increased their contribution rate in 2021, as well as more than a third (38%) of women investors on Fidelity’s 401(k) platform. What’s more, 34% of 403(b) savers increased their contribution rate in 2021.
Employers also continue to make contributions to their employees’ retirement savings. By the end of 2021, 83% of workers had their employer make a contribution, in addition their own 401(k) contributions, with the average employer contribution reaching $4,080 in 2021, Fidelity notes. Consequently, the average DC plan total savings rate (employee plus employer) stood at 13.9% in 2021, gradually rising from 12.4% in 2015.
Auto-Enrollment
A growing percentage of employers are automatically enrolling new employees in 401(k) plan and at a higher savings rate. As of the end of the fourth quarter, nearly 4 in 10 (38%) employers have auto enrollment as part of their 401(k).
In addition, more than a third (37%) of plans that use auto enrollment will sign up new employees at a 5% contribution rate or higher—up from 28% of plans five years ago.
And once employees are automatically enrolled in their 401(k), Fidelity found that they usually stay in the plan. According to the firm’s data, fewer than 1 out of 10 (9.1%) employees who are automatically enrolled in their 401(k) plan decided to opt out. In fact, more than 1.1 million workers were automatically enrolled in their company’s 401(k) plan in 2021.
Moreover, the difference in average participation rates between auto-enrolled and non-auto-enrolled plans is striking. Here, Fidelity’s data shows an average participation rate of nearly 87% for auto-enrolled plans compared to only 52% for non-auto-enrolled.
Not Cashing Out
Positive savings behavior was also seen in workers not cashing out their 401(k)s when they leave their jobs—according to a recent Fidelity study, only 6% of workers did so.
Instead, nearly a quarter (23%) rolled their savings into an IRA, 15% rolled their savings into their new employer’s 401(k) or 403(b) plan, and 18% decided to leave their savings with their previous employer. Fidelity notes that another 22% indicated they are planning to do something with their savings, but have not taken any steps yet.
The firm also reports that newly initiated 401(k) loans and withdrawals continue to return to pre-CARES Act levels.
As an aside, Fidelity notes that a third of participants report having considered looking for a new job or to starting one in the past year. While this turnover may be concerning for many employers, the firm suggests they are doing themselves a “disservice” if they are viewing this workforce shift as simply a “resignation,” rather than what could be “an opportunity for attraction.”
