Wanna Be a Millionaire? More Americans Are, Thanks to This Traditional Retirement Savings Method
Retirement account balances dipped in 2022, but they’ve now started to bounce back thanks to improving market conditions and positive savings behaviors, experts say.
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According to data from Fidelity Investments, the nation’s largest provider of 401(k) savings plans, the number of retirement savers with $1 million or more stocked away in their 401(k) accounts jumped 20% in the fourth quarter of 2023. Over the year, the number of 401(k) millionaires rose 11.5%.
The average 401(k) balance at the end of 2023 was up 14% from a year earlier to $118,000. This is the highest level in nearly two years, Yahoo Finance reported. Additionally, the average individual retirement account balance increased by 12% year-over-year to $116,600 in the fourth quarter of 2023.
CNBC noted that 2023 was also a great year for the major indexes. The Nasdaq grew 43%, while the S&P 500 had a 24% annual gain. The Dow Jones Industrial Average rose more than 13%.
The S&P 500’s nine-week win streak immediately preceded the substantial increase in the number of Fidelity 401(k) plans with a balance of $1 million. But the bigger account balances weren’t only because of the strong stock market.
“These are the poster children of staying the course and taking a long-term approach,” Mike Shamrell, Fidelity’s vice president of thought leadership, told CNBC.
The majority of these savers aren’t doing anything special other than saving at a high rate in the same plan over many years, Shamrell said. The average savings tenure of Fidelity account millionaire savers is 26 years, Yahoo Finance reported.
But it’s more than simply investing paycheck after paycheck for decades. Fidelity’s data shows that 401(k) millionaires save 17.5% of their pay on average. “Their employers contribute an additional 9% to their retirement accounts for a total savings rate of 26.6%.”
Stephanie McCullough, founder and CEO of Sofia Financial, told Yahoo Finance that her advice to millionaires would be to not pay too much attention to market highs and lows because both are temporary. “The market is going to keep doing its thing, bouncing around,” she said.
Once you’re within five years of retirement or plan to start spending some of your savings, McCullough said it’s time to move your retirement savings into short-term vehicles like a money market account. This is a safer place to temporarily store your retirement funds, especially when there’s a market downturn.
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This article originally appeared on GOBankingRates.com: Wanna Be a Millionaire? More Americans Are, Thanks to This Traditional Retirement Savings Method
