Retirement savers are reaping the benefits of the stock market’s record run.
The number of investors with at least $1 million in their 401(k) accounts rose to an all-time high of 233,000 in the final three months of last year, topping the previous record of 200,000 in the prior three months, according to Fidelity Investments’ quarterly analysis of retirement saving trends for its more than 30 million holders of 401(k) or IRA accounts.
The number of IRA millionaires also rose to a record 208,000 in the period. An IRA, or individual retirement account, is a tax-deferred personal retirement plan sponsored by the government.
The increases reflect some of the stock market’s strong gains at the end of 2019. The Dow Jones Industrial Average rose 6.7%, including dividends, during the fourth quarter, while the Standard & Poor’s 500 index climbed 9.1%.
“Many working Americans rely on 401(k) accounts to fund their retirement,” says Katie Taylor, vice president of thought leadership at Fidelity. “The fact that people across all age groups are saving at higher levels than what we’ve seen in the past is really encouraging.”
Average account balances also set records.
The average 401(k) account balance reached $112,300 at the end of the fourth quarter, or the last three months of the year. That represented a 7% gain from the previous quarter’s balance of $105,200 and surpassed a record of $106,500 in the third quarter of 2018.
IRA contributions rise
The percentage of investors contributing to their IRAs rose, led by millennials.
Younger adults in that demographic contributed $373 million to IRAs in the fourth quarter, a 46% jump from a year earlier with 73% of their contributions going into Roth IRAs. Experts say Roth IRAs are a favorable option for young investors because the money grows tax free and withdrawals aren’t taxed in retirement.
The number of IRA accounts with a contribution increased 7% from a year earlier, with the percentage of millennials contributing to an IRA rising 21% in that span.
Long-term savers cash in
For savers who have been participating in the same workplace 401(k) plan for a decade, the average balance reached a record $328,200 in the fourth quarter, topping a previous high of $306,500 in the prior quarter.
Among female investors, the average 10-year 401(k) balance grew to $261,000, a 21% jump from a year ago, which marked the first time the average balance for the group surpassed the quarter-million-dollar mark.
More employers are pitching in
Another factor that’s helping Americans boost their retirement savings: employers. A record level of them (35%) auto-enrolled new workers into their company’s 401(k) plan in the fourth quarter.
More employers are also auto-enrolling new employees at higher contribution rates. More than a third of plans (34%) now enroll new workers at a savings rate of 5% or higher, compared with only 11.8% enrolled at that level in the fourth quarter of 2009.
Employees should aim to stash away 15% during their working years, including company matches, to save enough for retirement, Fidelity recommends.
“Start saving as soon as you start your career and take advantage of any matching contributions within a 401(k),” Taylor says. “Saving early and increasing contributions over time are key.”