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Total Average 401(k) Savings Rate Reaches Record High

The total average 401(k) savings rate reached a record high of 14.2%, Fidelity said. This significant increase in savings can be attributed to both market gains and consistent contributions made by individuals towards their retirement accounts. The rise in the number of 401(k) millionaires is evidence of the positive impact of these efforts, with a 43% surge from the previous year. It’s important to note that achieving millionaire status in 401(k) accounts takes time, with an average of 26 years of consistent planning and saving, as reported by Fidelity Investments.

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The Power of Continuous Savings

The first quarter saw an impressive 485,000 new 401(k) millionaires, indicating a 15% increase from the previous quarter and a remarkable 43% increase from the previous year. These successful savers have been contributing to their accounts for an average of 26 years, with an average contribution rate of 17%. The positive growth in account balances further reflects the commitment of individuals towards securing their retirement.

Comparative Account Balances

The average balance for 401(k) accounts in the first quarter reached $125,900, marking a 16% increase from the same period the previous year. Additionally, the median 401(k) balance was reported as $28,900, showcasing the diversity in account sizes among savers. For 403(b) accounts, typically used by government and nonprofit workers, the average balance was $113,000, representing a 15% increase from a year ago.

Why IRA Balances Tend to Be Higher

IRA accounts showed an average balance of $127,745, up 13% from the previous year. This trend is often seen due to individuals consolidating multiple 401(k) accounts into a single IRA, leading to slightly higher balances. Fidelity’s analysis encompassed more than 45 million IRA, 401(k), and 403(b) accounts, providing a comprehensive view of retirement savings trends.

The Importance of Consistent Contributions

Fidelity’s President of Workplace Investing, Sharon Brovelli, emphasized the significance of steady contributions towards retirement savings. A savings rate of 14.2% in the first quarter, nearing Fidelity’s recommended rate of 15%, highlights the positive impact of continuous savings on account growth and financial security in retirement.

Addressing Borrowing From 401(k) Accounts

Despite the rise in savings rates, Fidelity noted that individuals continued to borrow from their 401(k) accounts, with 17.8% of workers having a loan in the first quarter. While this rate remained steady compared to the previous quarter, it was higher than the rate seen a year ago. Understanding the implications of borrowing from retirement accounts and exploring alternative financial options is crucial for long-term financial stability.

Empowering Small-Business Employees

Only 30% of small businesses offer retirement savings plans, but those who do provide opportunities for their employees to save for retirement have seen positive outcomes. Small-business retirement plans reported an average balance of $152,000, with an average contribution rate of 8%, surpassing the 9.3% deferral rate for a traditional 401(k). Offering a variety of retirement savings options for small-business employees can bridge existing gaps in retirement coverage and encourage more Americans to save for their future.

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