Retirement Savings Reach Record Highs
As markets soar to new heights, retirement savers are reaping the benefits. According to a recent report by Fidelity, the nation’s largest provider of 401(k) plans, the average 401(k) plan balance has surged 23% year-over-year to a record $132,300. This milestone is a testament to the dedication of individuals to save for their golden years.
Average Individual Retirement Account Balances Also Rise
The average individual retirement account (IRA) balance has also seen a significant increase, jumping 18% year-over-year to $129,200. This growth is a clear indication that people are taking their retirement savings seriously.
Millionaire Accounts on the Rise
The number of 401(k) accounts with a balance of $1 million or more has skyrocketed to a record 497,000, a 9.5% increase from the previous quarter. Similarly, the number of IRA-created millionaires has risen by nearly 5% to a record 418,111.
Contributions Remain Steady
Despite market fluctuations, contributions to retirement accounts have remained steady, with the average 401(k) contribution rate, including employer and employee contributions, standing at 14.1%. This is just shy of Fidelity’s recommended savings rate of 15%.
Market Appreciation Plays a Key Role
While positive savings behaviors have contributed to the growth, market appreciation has played a significant role in reaching these record highs. The Nasdaq has seen a 31% year-to-date increase, while the S&P 500 has risen 27% and the Dow Jones Industrial Average has gained over 16%.
Long-Term View Pays Off
Fidelity’s vice president of thought leadership, Mike Shamrell, attributes the success to taking a long-term view of savings. There is no secret formula or “hot stock” that has led to millionaire status; rather, it’s the result of consistent saving and investing.
Millennials Join the Ranks
Interestingly, some millennials have also cracked into the millionaire group, demonstrating that it’s never too early to start saving for retirement.
The Dark Side: 401(k) Loans on the Rise
While the numbers are encouraging, there is a concerning trend: the percentage of workers taking loans from their 401(k) accounts has increased to 18.7%. This is a worrying sign, as tapping into retirement savings can have long-term consequences.
Experts Weigh In
Financial experts advise against borrowing from a 401(k) before exhausting all other alternatives, as it can lead to forfeiting the power of compound interest. Instead, they recommend exploring other options, such as credit cards, which may have lower interest rates.
Credit Card Debt Continues to Rise
Speaking of credit cards, Americans now owe a record $1.17 trillion, an 8.1% increase from last year. This highlights the importance of managing debt and finding alternative solutions, such as borrowing from a retirement account, which can offer lower interest rates and more favorable terms.
A Silver Lining
While the rise of 401(k) loans and credit card debt is concerning, it’s heartening to see that individuals are taking control of their retirement savings. By prioritizing long-term planning and making smart financial decisions, we can work towards a more secure financial future.
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