It seems that Americans are becoming more financially secure — at least on the retirement front.
For the third quarter in a row, retirement account balances increased for households nationwide, according to a new analysis from Fidelity Investments.
The company analyzed the balances of more than 45 million IRA, 401(k) and 403(b) accounts and found that balances grew quarter-over-quarter and year-over-year.
What is the increase in the remaining amount?
The balance increased significantly between Q1 and Q2 of 2023. According to data from Fidelity, IRA balances grew by 4.4%, 401(k) balances by 3.8% and 403(b) balances by 4.6%.
There is also growth in all three account types from Q2 2022 onwards. For example, the average IRA balance is set to reach $113,800 in the second quarter of 2023, up from $110,800 a year ago. The average 401(k) will increase from $103,800 in the second quarter of 2022 to $112,400 in 2023. Meanwhile, the average 403(b) account owner’s balance is set to increase from $93,300 in 2022 to $102,400 in 2023.
This trend applies to every working generation. Generation Z, Millennials and Generation X have all significantly increased their savings. Even baby boomers saw a slight increase in their retirement accounts, which is especially noteworthy as this generation has entered retirement in a big way. Gen Z members are the big winners, with their 401(k) balances increasing 66% over the past year.
As if that weren’t enough, people are opening more retirement accounts than ever before. Fidelity found that investors have 14.3 million open IRA accounts, also a significant jump from a year ago.
The number of new accounts highlights one of the most important findings in Fidelity’s survey. It’s not just passive growth. People are more and more willing and able to take their retirement seriously.
Steady contribution fuels increases
Certainly, strong market conditions have helped investors’ retirement accounts grow. Although the stock market has been volatile over the years, it has maintained a steady overall growth. This has helped in promoting savings across the board.
But much of this growth is related to additional contributions rather than growth in existing funds. Fidelity cites “steady employer and employee contributions” as a key reason for the increase in retirement savings in its analysis. The growing number of IRAs suggests that investors are opening more retirement accounts and creating new ways to save. Young investors in particular (18 to 35 years of age) have the potential to grow their retirement savings through contributions and new accounts.
All this suggests a market where workers have both the means and the insight to start their retirement planning early, which is a positive sign for long-term savings.
impact of student loan payments
This is important because student loan payments will resume on October 1, which will be a huge financial event for Millennials and members of Gen Z. The reintroduced payment would act as an effective tax hike on the under-45 group, which collectively make up almost half. of all consumption and expenditure of the country.
,[M]Of any student loan borrower who has used a payment pause to focus on retirement savings, 72% of student loan borrowers have contributed at least 5% to their 401(k), compared to only 63% before the payment pause % contributed,” Fidelity wrote in its report. How will they start repaying their student loans once the moratorium is lifted?”
If you have student loans, act now. Know what and where your debts are. Find out if you can take advantage of a program or payment plan to lower your monthly burden. Consider refinancing, however be careful; Refinancing can save you money, but at the cost of waiving all of the protections that come with federal student loans. Overall, make a plan for how you will manage this new burden so that your retirement savings are not depleted.
What other savers should consider
For other savers, the growth in IRAs is an excellent trend. This is especially true when it comes to Roth IRAs. If you don’t have one, consider opening a Roth IRA and maxing out your annual contributions. This will give you an additional tax-advantaged way to save for retirement, in addition to your 401(k).
For self-employed and contractor savers, the same rule applies in reverse. While more complicated, most people who work for themselves can set up a corporate form that allows them to open a 401(k). This has the same effect, giving you an additional tax-advantaged account to build your retirement savings. However, in this case, try to work with a financial advisor or accountant to make sure you’re doing it right, as the process can be complicated.
All savers should also be sure to monitor their portfolios and rebalance their holdings to align with their target asset allocation. Finally, start an emergency fund, if possible. Having a portion of cash dedicated to unexpected expenses can help you avoid taking loans or taking premature withdrawals from your retirement accounts. This is not always possible. For many, money is not the only thing, but try. You’ll thank yourself later.
According to a new report from Fidelity, Americans have boosted nearly every aspect of their retirement accounts, from what they have to how much is in them. However, there are steps you can take to continue making progress toward your retirement goals.
Retirement Planning Tips
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