America's ranks of so-called 401(k) millionaires are diminishing following last year's stock market rout.
The number of 401(k) accounts with at least $1 million in retirement savings fell 32% last year, to 299,000, from 442,000 in 2021, according to new data from Fidelity Investments.
The shrinking number of 401(k) millionaires comes after the S&P 500 tumbled 19.4% last year and entered the longest bear market since the 2008 financial crisis. The downturn has marked a sharp departure from the prior decade, when a bull market buoyed investment portfolios and appeared to place a comfortable retirement within reach for many workers.
The average balance in a 401(k) plan tumbled 20.5% in 2022, reducing the typical employee nest egg to $103,900 at the end of 2022, according to Fidelity.
Anxieties about retirement are on the rise after last year's tough conditions, which included inflation hitting a 40-year high, experts say. One recent study found that workers now expect they will need$1.25 millionfor a comfortable retirement — a 20% jump from 2021.
With the decline in retirement savings, the "retirement gap" — the discrepancy between the amount of money people need to fund their golden years compared with what they've actually saved — is growing wider. And the challenge is greater when many workers are struggling to pay for basics like food and shelter, let alone plan for retirement.
To be sure, even with the declining number of 401(k) millionaires last year, there are still more than in 2019, when there were 233,000 accounts with at least $1 million in savings, according to Fidelity.
Notably, stashing away $1 million or more in a 401(k) plan is rare. Only about 1.4% of 401(k) accounts at the financial services firm had more than $1 million in assets at the end of 2022, according to Fidelity data.
Fidelity also noted it has seen a decline in the number of IRA accounts with at least $1 million in assets. At the end of 2022, there were 280,320 such accounts, down 25% from a year earlier.
Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.
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Greetings, readers. I am an avid financial enthusiast and an expert in retirement planning, particularly in the realm of 401(k) accounts. My expertise is not merely theoretical; I have delved deep into the intricacies of financial markets, investment strategies, and retirement planning, accumulating a wealth of knowledge that extends beyond the surface-level understanding.
Now, let's dissect the article by Aimee Picchi from CBS MoneyWatch dated February 24, 2023, shedding light on the key concepts discussed:
401(k) Millionaires and Market Impact:
The article reveals a significant decline in the number of 401(k) millionaires in the United States. According to Fidelity Investments, the count dropped by 32% in the aftermath of the stock market downturn in the previous year. This decline is attributed to the S&P 500's 19.4% fall, marking the longest bear market since the 2008 financial crisis.
Average 401(k) Balance and Market Performance:
The average balance in a 401(k) plan saw a notable decline of 20.5% in 2022, reaching $103,900 by the end of the year. This underscores the direct impact of the market turbulence on individual retirement savings portfolios.
Retirement Savings Challenges and Inflation:
The tough economic conditions of the previous year, including a 40-year high in inflation, have heightened anxieties about retirement. A study mentioned in the article indicates that individuals now believe they need $1.25 million for a comfortable retirement, reflecting a 20% increase from 2021.
Retirement Gap Widening:
The "retirement gap," defined as the difference between the required funds for retirement and the actual savings, is growing wider due to the decline in retirement savings. The article suggests that many workers are struggling to meet basic needs, making it even more challenging to plan for retirement.
Positive Note on 401(k) Millionaires:
Despite the decline in the number of 401(k) millionaires, the article notes that there are still more than in 2019, showcasing a broader trend over the past few years. However, it's emphasized that accumulating $1 million or more in a 401(k) plan remains a rare feat, with only about 1.4% of accounts surpassing this threshold.
Decline in IRA Accounts with $1 Million:
Fidelity's data extends beyond 401(k) accounts, highlighting a 25% decrease in the number of Individual Retirement Account (IRA) accounts with at least $1 million in assets at the end of 2022 compared to the previous year.
In conclusion, the article paints a vivid picture of the challenges individuals face in achieving financial security during retirement, offering insights into the impact of market fluctuations, changing perceptions, and the widening gap between retirement aspirations and actual savings.
America's ranks of so-called 401(k) millionaires are diminishing following last year's stock market rout. The number of 401(k) accounts with at least $1 million in retirement savings fell 32% last year, to 299,000, from 442,000 in 2021, according to new data from Fidelity Investments.
The amount of retirement millionaires continues to grow, too: As of June 2024, the number of 401(k) accounts with balances of at least $1 million rose to 937,747, up more than 18%, from year-end 2023, and nearly 31% year over year. The average account balance for this group was $1,148,019 as of June 2024.
Nearly half a million workers—485,000—hold a seven-figure balance in their accounts, according to Fidelity Investments' first-quarter 2024 retirement analysis. That's up a whopping 43% from the 340,000 401(k)-created millionaires a year ago.
There are now 485,000 retirement accounts with at least $1 million—up 43% from 340,000 401(k)-created millionaires a year ago, according to new data published by Fidelity Investments on Thursday.
401(k) losses can happen for all kinds of reasons, from short-term market fluctuations to events like a recession. Market volatility is a normal part of investing. What matters most is staying invested and maintaining a diversified portfolio.
Withdraw too much and you risk running out of money. Withdraw too little and you may not live the life you want to in retirement. Our guideline is to limit withdrawals to 4% to 5% of your initial retirement savings,4 then keep increasing this withdrawal based on inflation.
What are the average and median retirement savings? The average retirement savings for all families is $333,940, according to the 2022 Survey of Consumer Finances. The median retirement savings for all families is $87,000.
Among the millions of retirement savers who hold accounts at Fidelity, the median 401(k) balance was $28,900 as of the first quarter of 2024, according to data the brokerage provided. That number may skew a little low, since many investors have multiple, small accounts from past employers.
How much do people save for retirement? In 2022, about 46% of households reported any savings in retirement accounts. Twenty-six percent had saved more than $100,000, and 9% had more than $500,000. These percentages were only somewhat higher for older people.
The average age of 401(k) millionaires at Fidelity skews older at around 59. However, Gen Xers also hit a nice milestone in the last few months of 2023. Those who have had the same 401(k) plan for 15 straight years saw average balances hit $501,000.
Average 401(k) plan balances reached $112,572 in 2022, down from $141,542 in 2021 and $129,157 in 2020, according to Vanguard's “How America Saves 2023” report. While short-term market volatility is inevitable, it's important not to overreact to large swings in price.
Another issue surrounding 401(k) plans comes down to taxes. 401(k)s are taxed at higher earned income rates, as opposed to lower capital gains rates. You will find yourself paying capital gains taxes on other types of investments such as real estate and regular growth accounts.
“Don't let a recession deter you from adding money into your 401(k). Don't let yourself make an emotional decision due to a recession or bear market.” Taking money out of the market during times of volatility can have the opposite effect of what you might be trying to accomplish in the long run.
In 2022, the average balance in workplace retirement plans was $144,280 at the start of the year. By the end of the year, it had fallen to $111,210. That's a $33,070 loss and almost a 23% decrease over the course of a single year.
For example, if you have retirement savings of $1 million, the 4% rule says that you can safely withdraw $40,000 per year during the first year — increasing this number for inflation each subsequent year — without running out of money within the next 30 years. Of course, the 4% rule isn't perfect.
When it comes to wealth instead of income, the survey participant's perceptions hit closer to home. For example, roughly 22 million people in the U.S. had a net worth of more than $1 million in 2020, which amounts to about seven percent of the population of the United States.
In 2022, 15% of retirement plan participants saved the highest amount of $20,500 for that year, or $27,000 for those age 50 and older, according to Vanguard research.
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