Retirees are gaining back full confidence in 401(k) savings plans after a tumultuous run over the past year. Many retirement saving accounts have recovered from losses that resulted from the pandemic, posting healthy increments over the past few months. This comes off the heels of incredible profit runs in the stock markets in recent times.
The S&P 500’s annual returns were up by 20% during the first quarter of 2021 compared to the same quarter last year. And besides a scare from three consecutive days of losses, investors have enjoyed steady streams of profit for the most part of the year.
According to a Fidelity periodic on retirement plans, about 17% of workers made more contributions to their plans – many more workers compared to the same period last year. The increments were mostly recorded in tax-deferred contributions.
Also, a significantly larger number of employees signed up more employees to their 401(k) plans. The overall average 401(k) balance peaked at $123,900 recently.
The report also showed lower withdrawal rates, with just 2.4% holders liquidating their plans for various reasons, compared to 6.1% during the last quarter of 2020.
This combination of amplified spending habits and bullish profits has given rise to a record number of newly minted 401(k) and IRA millionaires. Fidelity posted a record number of 401(k) plans with a balance of at least $1 million – 365,000 of them, while IRA millionaires topped over 300,000 – an all-time high.
Altogether, there are twice as many retirement millionaires as they were a year ago. Most also seem to make greater contributions compared to the average combined employee employer contribution rate of about 14%.
“These are people making it a goal to do as much as possible with these retirement accounts,” she said. “It’s not something that happens overnight, it’s really an example of staying the course and taking a long-term approach,” according to Jessica Macdonald, a vice president at Fidelity Investments.
She also added that they’re also holding more equities, which experienced a huge boon last year.
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