The recent surge in the average 401(k) plan balance has left retirement savers reaping the benefits as the markets reach record highs. According to a new report by Fidelity, the average 401(k) plan balance ended the third quarter of 2024 up 23% from a year earlier, at a staggering $132,300 – marking the highest average on record. Fidelity, the nation’s largest provider of 401(k) plans, manages over 49 million retirement accounts altogether, making these statistics significant in the realm of retirement savings.
Additionally, the average individual retirement account balance also saw a noticeable increase, rising 18% year over year to reach $129,200 in the third quarter of 2024. Furthermore, the number of 401(k) accounts with a balance of $1 million or more soared to a record 497,000 as of Sept. 30, representing a 9.5% increase from the second quarter. Similarly, the number of IRA-created millionaires increased by nearly 5% to a record 418,111.
Experts like Sharon Brovelli, president of workplace investing at Fidelity Investments, attribute these positive trends to a continued dedication to saving for retirement, with contributions to these retirement vehicles holding steady, if not increasing. Douglas Boneparth, a certified financial planner, noted that the all-time highs were largely due to market appreciation, but emphasized that robust contributions were also crucial in this regard.
Despite the overall positive trends, more retirement savers have begun tapping into their 401(k) accounts to free up cash, with the percentage of workers taking a loan from their 401(k) increasing to 18.7% from 17.6% a year earlier. While federal law allows workers to borrow up to 50% of their account balance or $50,000, financial experts caution against tapping into retirement savings prematurely, as it could diminish the power of compound interest.
On a broader scale, Americans are increasingly turning to credit card debt to make ends meet, with a record $1.17 trillion owed on credit cards, marking an 8.1% increase from the previous year. Despite the higher interest rates associated with credit card debt, households may still view borrowing from a retirement account as a preferable alternative due to the lower interest rates and the ability to pay themselves back with interest.
As the retirement savings landscape evolves, it is essential for individuals to weigh the benefits and drawbacks of tapping into their retirement accounts for immediate financial needs. The current trends in retirement savings highlight both the progress and challenges faced by individuals striving to secure their financial future.
