A new analysis made by Fidelity found that Americans are contributing a record portion of their income to retirement savings, mostly in 401(k) retirement plans. Total savings rates for 401(k) funds have reached an all-time high of 14.2%, driven by both employee and employer contributions. While employee contributions stand at 9.4%, those of employers reach 4.8%.
These historical levels are quite similar to previous records and represent the figure closest to the savings rate suggested by Fidelity, the company that made this survey, which is 15%, including the contributions of both. It should be noted that Fidelity offers its position as a company that manages this type of funds and does not represent a sacred or unquestionable number.
Long-Term Average Balances of 401(k) Retirement Plans
The analysis also found that the average balance of five-, ten- and fifteen-year continuous savers has increased this quarter. The most relevant were fifteen-year-old savers, who have seen a 7% increase in their account balances.
These encouraging data highlight the value of contributing consistently to the same plan over an extended period, which leaves better returns and gives more strength to your fund, according to experts. It is significant to note that, for the first time, the fifteen-year continuous balance for Gen X participants ($543,400) has surpassed that of Boomers ($543,200).
Gen Z Roth IRAS: How Much Do People Under 30 Save?
It is interesting to note that young people are starting to save, becoming aware of the importance of looking to the future at a time when the stability of plans such as Social Security is being questioned. Recently, the trustees of the social security system warned that the funds could run out by 2035 if lawmakers and the federal government do not do something about it to avoid bankruptcy.
The number of Roth IRA accounts in the names of people belonging to Generation Zers increased by 71% in the first quarter of 2024 compared to the same period last year. It is also notable that average contributions to these accounts increased by 11.1%, but what is truly remarkable is that IRAs owned by Gen Z women increased by 60% in the last year, indicating a growing trend of interest in long-term financial planning among young women.
401(k) Loans and Average Account Balances
The percentage of workers with an outstanding loan from their 401(k) remained at 17.8% this quarter, a figure consistent with the levels of the fourth quarter of 2023. However, this percentage is higher than a year ago, which stood at 16.7%. The average account balance in 401(k) plans is $152,000, with an average contribution rate of 8%. This contrasts with a 9.3% deferral rate for a traditional 401(k). The average tenure of these plans is 9.9 years, compared to 8.6 years for traditional plans.
Are Americans Positive About Their Retirement Savings?
A comprehensive survey conducted by the U.S. Federal Reserve found that 34% of non-retired American adults consider their savings plan to be on track in 2023, up from 31% in 2022 but down from 40% in 2021. Inflation was ranked as the top financial concern according to the Fed’s economic well-being of American households report in 2023.
In addition, only half of baby boomers who are still working feel they are close to retirement, according to a separate survey to be published by Goldman Sachs Asset Management next week. Future health care costs were highlighted as their top concern.
Is it Even Possible to Reach the $1 Million in my 401(k) Retirement Plan?
Experts have found at least five strategies that a person with a 401(k) savings fund can carry out to achieve reaching one million dollars by the time of their full retirement age (FRA). The first thing is to start early and maintain a consistency. Time is the greatest asset and the greatest treasure when it comes to saving for retirement, and the sooner you start contributing to your 401(k), the longer your money will have to grow thanks to compound interest.
For example, if you contribute $250 per month to your 401(k) and earn a 7% annual rate of return, you’ll have more than $1 million in 30 years, according to some expert estimates.
The second strategy is to increase your contributions as your salary increases. If you receive raises or bonuses, you can convert them into retirement savings. Even the smallest increase in your contributions can make a big difference to your long-term balance, again, thanks to compound interest and time.
The third strategy is to take advantage of your employer’s matches. If the company you work for offers matching contributions to your 401(k), be sure to make the most of them. It’s free money that will help you reach your retirement goal faster.
Diversify Your Investments
The fourth tip is to invest in a diversified combination of funds: the classic advice not to put all your eggs in one basket. Invest your 401(k) in a mix of different funds like stocks, bonds, or money market funds. Some people even invest in real estate, which, as with other investments, requires advice from experts in the field. It is never too much to repeat that you should always be advised by a financial or retirement expert.
The last strategy is to avoid the temptation to sell your investments when the market is depressed. Always consult with an expert to determine the health of your investments, and remember that you are investing for the long term. Markets go up and down over time, but they usually go up in the long run.
