Have you checked your retirement account lately? A record number of investors are 401(k) millionaires. According to a study by Fidelity Investments, one of the largest administrators of workplace retirement accounts in the United States, about 168,000 people who invest with the company had more than $1 million in their 401(k) accounts by the end of the second quarter. That represents growth of roughly 50,000 people from the same period a year ago.
The rate of growth has more than doubled since 2015, when just 77,000 people had at least a million in their 401(k), according to Fidelity. The new report also shows that fewer investors are borrowing from their 401(k) accounts, perhaps signaling that employees have more spending money for large purchases in a strong economy. It could also reflect wiser decisions to not touch retirement accounts unless absolutely necessary. Traditionally, there are severe penalties for withdrawing from a 401(k) before the appropriate retirement age. Fidelity says just 20.5 percent have an outstanding 401(k) loan, the lowest since 2009.
Auto-enrollment is on the rise, helping to boost investment. Fidelity says 61 percent of companies with more than 50,000 workers automatically sign up their employees for 401(k) savings plans. Participation rates are 87 percent for workers with automatic enrollment while 52 percent are enrolled in companies without automatic sign-up policies. The study also points out that the average amount that employees choose to save in their 401(k) is 6.7 percent of their paycheck. That’s up from 4 percent. Common advice is to save at least as much as the employer will match.
“Individuals are increasing their savings rates, they’re taking advantage of their company match and they’re keeping a healthy percentage of stocks in their account,” says Jeanne Thompson, senior vice president at Fidelity Investments. “It takes many years of consistent saving and investing, but following these steps as part of a long-term retirement strategy can put an individual in a good position to eventually reach this savings milestone.”
In the 2018 tax year, employees under 50 are allowed to set aside up to $18,500 of their salary in 401(k) plans. Employees 50 and older are allowed to contribute an additional $6,000 in so-called “catch-up” savings.