(TND) — A record number of people have reached $1 million in their 401(k) retirement accounts, according to Fidelity Investments.
A Fidelity spokesperson Tuesday said they counted 485,000 such accounts as of the first quarter of the year, up 15% from the previous quarter and up 43% from a year ago.
Those “401(k)-created millionaires” have been in their plans for an average of 26 years and have an average contribution rate of 17%, the spokesperson said.
Fidelity also recently reported that record-high contribution levels paired with positive market conditions have pushed average account balances to their highest levels in over two years.
Fidelity’s metrics come from an analysis of 23 million 401(k) participants.
The average 401(k) balance in the first quarter was $125,900, up 16% from a year ago.
“That we’re peaking in terms of 401(k)s speaks to the fact that the stock market has been just on fire,” Colorado State University economist Stephan Weiler said.
The S&P 500 is up over 25% in the last year.
“It is one of the bright sides of the American economy that people have in fact been taking advantage of the 401(k) system,” he said.
But there’s still a lot of inequality in income and wealth, he noted.
A Census Bureau report from 2022 showed that just 58% of baby boomers and 56% of Gen X Americans owned at least one type of retirement account.
Less than half of millennials had a retirement account, as did just 7.7% of the youngest adults, Gen Z.
And the Department of Labor said last fall that more than a quarter of private industry workers with access to a defined contribution plan, such as a 401(k), did not participate.
Americans' household debt continued its steady increase in the first quarter, hitting a new high of $17.69 trillion.
Credit card balances were about 13% higher than they were a year ago.
And the personal saving rate is a low 3.2%.
The personal saving rate averaged 6.2% from 2016 through 2019, then it spiked during the pandemic.
But Americans have burned through a lot of their built-up savings.
Weiler said it’s a cause for concern when the personal saving rate goes below 5%.
The saving rate is a percentage of disposable income. So, the 3.2% now means Americans on average are only putting away about $3.20 per $100 of disposable income.
“You do have the ‘haves’ who have been feasting on the stock market,” Weiler said.
But he said he’s worried about the folks who are relying on Social Security to get them by in retirement.
“Social Security just isn't very much to live on,” Weiler said.
The Congressional Budget Office projects that under current law, Social Security will run out of reserves in less than a decade.
“That doesn't mean there's no money for retirees. But it does mean retirees can only get paid based on what's currently coming in, which is the equivalent of a 23% across-the-board cut,” Marc Goldwein, senior policy director for the nonpartisan and nonprofit Committee for a Responsible Federal Budget, previously told The National Desk. “And that's about $17,400 per couple, for a typical couple retiring that year.”
The future economy will be stronger if a big wave of retirees can keep spending.
Weiler said a 401(k) is a great savings mechanism.
“With the baby boomers being such a large lump of people going into retirement age, you're getting real stress on both Social Security and Medicare,” Weiler said.
