Advice | 401(k) balances are up, but the number of millionaires is down (2024)

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.”

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.

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.

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.

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.

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.

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.”