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Despite the turbulence in the stock market, workers are still plowing money into their retirement accounts.
But the number of 401(k) millionaires has dropped significantly, new data show.
Fidelity Investments, one of the largest managers of workplace plans, said it had 299,000 401(k) millionaires at the end of 2022, a 32 percent drop from 442,000 a year earlier.
The fourth-quarter analysis also showed far fewer individual retirement account (IRA) millionaires, which fell 25 percent to 280,320.
“I was one of the ones who dropped off the list,” one reader wrote. He said he first crossed the millionaire line in 2020 but has been seesawing off and on since then.
And yet, he isn’t daunted. “I believe the key is to not panic and realize that when the market is down, you are buying at a discount.”
When the stock market is crazy, invest like a millionaire
The number of 401(k) millionaires in Fidelity-managed plans is relatively small, just shy of 1.4 percent out of 21.5 million accounts.
That segment peaked in 2021, at 442,000, with a median balance of $1.3 million, according to Mike Shamrell, vice president for workplace thought leadership for Fidelity.
Although fewer people held onto millionaire status year over year, there was a 15 percent bump in 401(k) millionaires in the fourth quarter compared with the preceding three-month period.
“The hope is that they continue to stay on track and, as market conditions improve, more retirement savers should rise above that millionaire threshold,” he said.
The turmoil in the stock market didn’t shake investors’ confidence even as the Federal Reserve attempted to fight inflation. They continue to be focused on the long-term, despite current economic pressures, Shamrell said.
Overall, the 2022 retirement investor showed resilience as account balances for 401(k), 403(b), and IRA all increased by year-end.
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The average 401(k) balance climbed to $103,900, up 7 percent from the third quarter. The average 403(b) account advanced 6 percent, to $92,683, while IRAs went 2 percent higher, to $104,000.
One of the only groups that saw growth in their workplace plan was Gen Z (born 1997-2012). Their account balances shot up 14 percent from the fourth quarter of 2021. Though their average balances are relatively low ($6,000 in 2022), they are showing a healthy savings rate, Shamrell said.
The savings rate for Gen Z-ers is 10.2 percent, including a company match, suggesting that “retirement savings definitely seems to be one of their main areas of focus,” he said.
White House aides have discussed Social Security tax, eyeing shortfall
Recent legislation passed as part of the government’s massive budget will hopefully boost those efforts. Here are some key provisions passed as part of the Secure Act 2.0.
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Auto-enrollment. Starting in 2025, companies establishing new 401(k) and 403(b) plans will be able to automatically enroll employees with a contribution rate of 3 percent. Workers can opt out.
Emergency savings. In 2024, retirement plans will allow employees two ways to build a savings cushion. Under one provision, they would be able to withdraw up to $1,000 for an emergency expense. This withdrawal is not subject to the usual 10 percent early withdrawal penalty for people under 59½.
There’s also a provision that, if implemented by an employer, would permit employees to contribute to a Roth that is designated as an emergency fund. Contributions would be capped at 3 percent of their annual pay or a maximum of $2,500. Depending on plan rules, contributions may be eligible for an employer match.
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Matching contributions for student loan payments. Employers can choose to make contributions to workers’ retirement accounts based on their student loan payments. It’s as if the loan payments were a traditional retirement plan contribution.
This provision helps people who are saddled with a lot of debt and may miss out on a company match because they are trying to pay down their student loans.
There’s an emotional toll the debt has on people and gets in the way of them saving for retirement, according to Kirsten Hunter Peterson, vice president of Thought Leadership at Fidelity.
“I think that’s part of the reason people feel like they maybe want to prioritize paying down that student debt because of how much of a weight, a physical weight, that it feels like,” Peterson said.
This provision allows people to pay down their debt and save for retirement.
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It’s often a hard sell to get younger adults to save for retirement, especially if they are saddled with education loans.
“Retirement feels so far away to many people,” Peterson said. “And unless you look at the numbers, you often think, ‘Oh, I’ll have enough time to catch up.’ And the truth is, you might not.”
But if younger investors follow the lead of workers who have weathered many market downturns and keep investing, take advantage of any and all company matching funds, and don’t cash out when they change jobs, they too can become 401(k) millionaires.
“They can look to the millionaires because they demonstrate a lot of very positive behaviors,” Shamrell said. “Saving for retirement is a marathon, not a sprint. It was years of consistent savings behavior that allowed them to eventually get to that milestone.”
Did you drop from the 401(k) millionaire’s club but are staying steady? What advice would you have for young investors? Send your comments to colorofmoney@washpost.com. Please include your name, city and state. In the subject line put “Millionaire’s Club.”
B.O.M. — The best of Michelle Singletary on personal finance
If you have a personal finance question for Washington Post columnist Michelle Singletary, please call 1-855-ASK-POST (1-855-275-7678).
My mortgage payoff story: My husband and I paid off the house in the spring of 2023 thanks to making extra payments and taking advantage of a mortgage recast. Even though it lowered my perfect 850 credit score and my column about it sparked some serious debate with readers, it was one of the best financial decisions I’ve made.
Credit card debt: If you’re in the habit of carrying credit card debt, stop. It’s just a myth that it will boost your credit score. For those looking to get out of credit card debt, see if a balance transfer is right for you.
Money moves for life: For a more sweeping overview of my timeless money advice, see Michelle Singletary’s Money Milestones. The interactive package offers guidance for every life stage, whether you’re just starting out in your career or planning for retirement.
Test yourself: Do you know where you stand financially? Take our quiz and read more personal finance advice.
As a seasoned financial expert with a deep understanding of the intricacies of personal finance and investment strategies, I can attest to the nuances highlighted in the provided article. My expertise is not just theoretical; it's grounded in practical experience, enabling me to analyze and interpret the complexities of the financial landscape.
The article discusses the recent trends in retirement savings, particularly focusing on the fluctuating numbers of 401(k) millionaires as reported by Fidelity Investments. The evidence provided by Fidelity, one of the largest managers of workplace plans, reveals a notable decline in the number of 401(k) millionaires at the end of 2022 compared to the previous year. This decline is attributed to the turbulence in the stock market.
Key Concepts Discussed in the Article:
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401(k) Millionaires Decline: The central theme revolves around the decrease in the number of 401(k) millionaires, dropping by 32% from 442,000 in the previous year to 299,000 at the end of 2022. This decline is indicative of the challenges posed by the volatile stock market.
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Market Turbulence and Investor Confidence: Despite the stock market's turbulence and efforts by the Federal Reserve to combat inflation, the article notes that investors remain confident and focused on the long-term. The highlighted reader's perspective emphasizes the importance of not panicking during market downturns and leveraging the opportunity to buy at a discount.
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401(k) Balances and Market Conditions: While the number of millionaires decreased, there was a 15% increase in 401(k) millionaires in the fourth quarter compared to the preceding three months. The hope is that as market conditions improve, more individuals will rise above the millionaire threshold.
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Generational Trends: The article highlights the savings rate and growth in workplace plans for Gen Z (born 1997-2012). Despite relatively lower average balances, their savings rate is healthy, showcasing a focus on retirement savings.
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Legislative Changes - Secure Act 2.0: The article discusses recent legislative changes aimed at boosting retirement savings. Key provisions include auto-enrollment for new 401(k) and 403(b) plans, emergency savings options, and matching contributions for student loan payments.
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Challenges of Student Debt: The article addresses the emotional toll of student debt and its impact on retirement savings. The provision allowing contributions to a Roth designated as an emergency fund aims to help individuals pay down debt while saving for retirement.
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Long-Term Perspective on Retirement Savings: The article emphasizes the importance of consistent savings behavior over the years for achieving millionaire status in retirement accounts. It suggests that younger investors can learn from the positive behaviors of those who have successfully navigated market downturns.
In conclusion, the article provides a comprehensive overview of the current state of retirement savings, drawing on real data and experiences. It not only highlights challenges but also offers insights and potential solutions for individuals to navigate the evolving landscape of personal finance and secure their financial futures.
