A million dollars isn't what it used to be—but it doesn't hurt to have.
Investors took hit after hit during a tumultuous 2022: soaring inflation, rising interest rates, and declines in the bond and equity markets all led to substantial decreases in average retirement account balances last year. But this year brings better news: account balances are growing by double digits over the past 12 months. The growth is so strong, in fact, that the share of 401(k) millionaires has grown by 25% so far this year, according to Fidelity Investments’ Q2 2023 retirement analysis.
At least 378,000 people with Fidelity 401(k) plans had at least $1 million in their accounts at the end of June, compared to 299,000 at the end of 2022. Individual retirement account (IRA) millionaires also grew over the second quarter, with 349,104 by the end of June, per Fidelity's report, which analyzed the savings behaviors and account balances of more than 45 million retirement accounts that it manages.
And it's possible that Fidelity's analysis undercounts retirement account millionaires, given individuals may contribute to both 401(k)s and IRAs, or have accounts at other institutions. Of course, there are many people in the U.S. who do not have a retirement account at all, and balances vary significantly depending on factors like age, profession, and income.
Fidelity credits the growth to strong contribution rates as well as the rebounding stock market. The total contribution rate—which combines employee and employer contributions—for the second quarter was 13.9%, in line with what many experts advise (Fidelity suggests 15%). Baby boomers save the most, per Fidelity, with a contribution rate of 16.6% of their salary over the quarter.
Though there are more 401(k) millionaires, boasting at least a seven-figure balance is far from the norm. Overall, the average 401(k) balance increased to $112,400, while the average IRA balance was $113,800 last quarter.
Young professionals are seeing their savings soar
Young savers have done especially well. Gen Z saw a 66% increase in average 401(k) balances compared to a year ago, while millennials saw a 24.5% increase. Average Gen X balances were up 14.5%, and baby boomers saw an average increase of 6.3% compared to a year ago.
Other reports have found that younger workers are saving more for retirement than their older coworkers at similar ages. Contribution rates typically make the biggest difference in balances when workers are just starting out, making it critical for them to start investing; after years of compounding growth, returns start to play a bigger role.
"I am so encouraged to see the leaps young investors are making when it comes to their retirement savings, across both 401(k)s and IRAs," Joanna Rotenberg, president of Personal Investing at Fidelity, said in a statement, noting that starting young gives investments more time to grow and compound.
The growth is good news for savers, who increasingly report they will need more and more to live comfortably in retirement. A recent report put the average saver's goal retirement balance at $1.1 million, while others put the figure at $1.9 million, reflective of the growing cost of living in the U.S.
"A million dollars isn’t what it used to be, but it can still provide a comfortable retirement if done right,"
Gates Little, president and CEO at the Southern Bank Company, previously told Fortune. That said, "if you have been earning $100,000 annually for most of your professional life, you’re likely used to a much cushier lifestyle than a $1 million retirement can provide."
It's also a relief after a dismal 2022. But investors largely stayed the course, as evidenced in this year's rebound. That's usually the best tactic, according to Fidelity.
"While everyone's financial situation is different, Fidelity suggests taking a long-term approach to saving and avoiding making changes based on short-term economic swings—positive or negative," the report reads.
