More workers enter 401(k) millionaires club thanks to stock market surge

Fidelity Investments, one of the largest administrators of workplace plans, said it had 422,000 401(k) millionaires at the end of 2023, a nearly 21 percent increase from the third quarter.

The number of IRA millionaires hit a record 391,562 in the fourth quarter, about 40 percent higher than a year earlier.

It’s been a rocky road for this group of investors. The number of IRA and 401(k) millionaires started to drop in 2022 because of market conditions.

The average age of the 401(k) millionaires is 59, but their wealth accumulation isn’t just a function of time — it also stems from good investing practices. The number of people in Fidelity’s millionaires club remains relatively small — 1.8 percent of 401(k) participants and 2.61 percent of IRA holders — but they demonstrate a lot of positive behaviors that other investors should follow, such as not panicking when there’s a market downturn.

“They’re a great example of people who have really stuck with it and taken a long-term approach to their retirement savings,” said Mike Shamrell, Fidelity’s vice president for workplace thought leadership.

Many of these folks drifted in and out of the millionaires club over the last year and a half, but they weren’t deterred.

“It’s not like there are all these super 401(k)s pulling up the average,” Shamrell said.

The median balance among the millionaires is $1.34 million.

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“There are a lot of people right around a million, and if there is a little bit of a downswing, they will drop out of the group,” Shamrell said. “But if they continue to stay the course, contribute at the healthy amount that they typically do, and there are more positive market conditions, they will surpass that threshold at some point in the near future.”

The news was good for non-millionaire investors as well: Average retirement account balances increased.

The average balance for Gen X workers — individuals born between 1965 and 1980 — who have been saving in their 401(k) plan for 15 years shot up to $501,000 by the end of 2023, according to Fidelity.

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Workers who continued to contribute to their retirement plans even when the stock market took some worrisome drops have seen a payoff in their account balances, according to Fidelity. The company provides a quarterly analysis of more than 46.1 million individual 401(k), 403(b), and IRA retirement accounts.

The average 401(k) balance for the fourth quarter increased to $118,600, up 10 percent from the previous three months. IRA balances rose about 6 percent to 116,600 and 403(b) accounts were up 9 percent to $106,100.

Overall, retirement investors have shown resilience as account balances have fluctuated up and down, Shamrell said.

Want to be a 401(k) millionaire? Here’s what it takes:

• Contribute enough to get whatever company match is offered. Fidelity said 81 percent of workers receive some type of employer contribution either through company match or profit-sharing. The typical match is a dollar-for-dollar match on the first 3 percent and then 50 cents on the dollar on the next 2 percent, Shamrell said. An overwhelming majority of 401(k) savers contribute enough to get the full company match.
• Don’t cash out of your retirement account when you change jobs. Don’t borrow against the account.
• Aim to save at least 15 percent of pretax income annually for retirement, Fidelity recommends. This would include any employer match.
• The daily movements of the stock market can rattle even the most seasoned investor. But don’t let that panic derail saving for retirement. On the flip side, people often ask Shamrell what they should do to take advantage of a market rally. “My non-jazzy answer to that is nothing,” he said. “You should continue to take a long-term approach. That’s what’s going to benefit them the most as opposed to trying to leverage any sort of short-term changes.”
• If you’re worried you might react impulsively to the market, consider a target-date fund. Most target-date funds hold a mix of stocks, bonds and other investments. This type of investing is designed to become more conservative as an investor gets closer to a particular retirement date. Target-date funds are generally higher in equities for younger investors.

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There’s a lot we can learn from the investing habits of people who have patiently saved for decades through bull and bear markets to reach millionaire status.

But even if you never join the club, emulate their behaviors as best you can for a more secure retirement.