Average balances of 401(k), 403(b) and IRA accounts managed by Fidelity have nearly doubled since 2008, reaching record highs.
Based on data of more than 30 million retirement accounts, Fidelity Investments’ third quarter 2018 analysis shows that the average 401(k) balance reached an all-time high of $106,500, surpassing the previous record high balance of $104,300 from the fourth quarter of 2017. What’s more, the average balance is 7% higher than a year ago, but represents an astounding 87% increase from the third quarter 2008 average balance of $56,900.
And the good news doesn’t stop there. The data also shows that contribution rates for women have reached record levels, the number of 401(k) millionaires has increased by 40% from the third quarter of 2017, and average 401(k) balances for Millennials saving for five years straight has topped $80,000.
In fact, the number of 401(k) millionaires increased to 187,400 at the end of the third quarter of 2018, up from from 133,000 in the third quarter of 2017, according to Fidelity. This is nearly 10 times the 19,300 savers with $1 million in their Fidelity 401(k) in the third quarter of 2008.
The overall average employee 401(k) contribution rate reached 8.7%, which is the highest level since fourth quarter of 2006. Encouragingly, contribution rates for women investors reached a record high, with an 8.5% average rate in the third quarter. Moreover, 32% of 401(k) women investors increased their contribution rate over the last year, compared with just 14% of women who did the same during the 12-month period ending in the third quarter of 2008.
Consistent Savers Reap Benefits
Consistent savers who have stayed the course appear to have reaped the benefits of long-term investing. Among workers who have been in their company’s 401(k) plan for five consecutive years, the average balance reached $221,200 at the end of the third quarter of 2018, up from $103,700 five years earlier. Even Millennials have benefited, with their average balance reaching $82,000, up from $20,600 five years ago.
But perhaps even more impressive, for 10-year continuous savers, the average 401(k) balance reached $305,400 in the third quarter of 2018, nearly five times the average balance of $65,700 for this group 10 years ago. And for 15-year continuous savers, the average 401(k) balance for this group increased to $400,300 in the third quarter, more than eight times the average balance of $47,800 for this same group in 2003.
TDFs Take Hold
The data further reveals that, for the first time, more than half (50.4%) of all Fidelity 401(k) accounts now hold 100% of all of their assets in a target date fund.
Overall, slightly more than 30% of Fidelity 401(k) assets are in TDFs, up from 9.8% in the third quarter of 2008. In addition, more than half (51%) of all new 401(k) contributions go into a TDF.
The data indicates that 68% of Millennials are 100% invested in a TDF, due in part to being auto-enrolled in their 401(k) and defaulted into the option. For 403(b) savers, the percentage of individuals who have all their assets in a TDF jumped to 62%, which is a record high, Fidelity notes.
Meanwhile, the percentage of plans offering Roth 401(k)s has increased by 56% in the last five years. With this option being increasingly popular with younger participants, contributions are also on the rise.
According to Fidelity’s data, Millennials are the most likely generation to be contributing to a Roth, increasing from 10% to 14% in the last 10 years. In addition, more than half (57%) of 401(k) savers contributing to Roth are also contributing pre-tax money to ensure tax diversification.
“One of the few positive outcomes from the financial crisis was that it caused individuals to take a closer look at their retirement accounts and educate themselves on some of the steps they should take to help protect and grow their retirement savings,” explained Kevin Barry, president of workplace investing at Fidelity Investments. “Combined with some of the plan design benefits of the Pension Protection Act, we’ve seen an increasing amount of positive savings behavior over the last 10 years, which helped put many people back on track to reach their retirement goals.”
