BOSTON--(BUSINESS WIRE)--Fidelity Investments® today released its quarterly analysis of 401(k) and individual retirement accounts (IRA). The analysis1 reveals:
- Retirement account balances reached all-time highs for the fourth consecutive quarter. Helped by strong stock market performance, the average 401(k) and IRA balances increased 10 percent over the last year and continued to hit record levels. The average 401(k) balance rose to $99,900, while the average IRA balance climbed to $103,500.
Average Balances
| Q3 2017 | Q2 2017 | Q3 2016 | Q3 2012 | |||||||||
| 401(k) | $99,900 | $97,700 | $90,800 | $76,100 | ||||||||
| IRA | $103,500 | $100,100 | $94,000 | $76,600 | ||||||||
While the average 401(k) and IRA balance increased for every generation2 (Boomers, Gen X and Millennials) over the last year, significant growth was seen among Gen X investors. The average IRA balance for Gen X investors increased 16.5 percent to $51,500, and the average Gen X 401(k) balance increased 18 percent to $98,800.
- Individuals are contributing more to their retirement accounts. While part of the increase in retirement account balances can be attributed to stock market activity, the increase is also due to people putting more money aside for retirement. The average 401(k) contribution rate reached 8.5 percent in Q3, the highest percentage in almost 10 years, and more than one-in-four savers (29 percent) increased their contribution rate over the last year. The amount contributed to IRAs year-to-date increased 12 percent; Roth IRA contributions alone increased by 13 percent.
- Fidelity’s Roth IRA for Kids® reaches 10,000 accounts. Demonstrating it’s never too early to start saving for retirement, Fidelity’s Roth IRA for Kids, launched in 2016, has generated significant interest with now more than 10,000 accounts. The product allows an adult custodian to contribute the equivalent of the child’s yearly income to the account, providing an early start to retirement savings. This head start can have a significant impact – Fidelity analysis3 shows that individuals who start saving at age 15 could have double the retirement account balance at age 70 as someone who starts saving at age 25.
- More individuals using target date funds to help keep 401(k) asset allocation on track. An increasing percentage of workers are using target date funds for 401(k) savings, which can help individuals maintain an age appropriate allocation of stocks, bonds and cash within their retirement savings account. As of the end of Q3, 29 percent of all Fidelity 401(k) assets were held in target date funds, up from 18 percent at the end of Q3 2012. Almost half of all workers (48 percent) hold all of their 401(k) savings in a target date fund, up from 30 percent in 2012.4
“Two of the most important aspects of a retirement savings strategy are how much an individual contributes and how they allocate their savings,” said Jeanne Thompson, senior vice president, Fidelity Investments. “The increasing use of target date funds, along with the increasing number of individuals contributing more to their retirement accounts, can help ensure people are saving at the right level and have a diversified mix of assets, which will put them on a path to reach their retirement savings goals.”
Workers with both an HSA and 401(k) contribute more than workers with
just a 401(k)
As health care takes on a larger role within
retirement savings discussions, an increasing number5 of
companies are offering high deductible health plans with health savings
accounts (HSAs), which allow people to put aside money for today’s
health care expenses while also investing for medical costs they may
incur in retirement. While the number of HSA account holders on
Fidelity’s platform increased 35 percent over the last year, Fidelity
analysis indicates that workers who contribute to their HSA are not
doing so at the expense of their 401(k) contributions – in fact,
individuals who contribute to both their HSA and their 401(k)
contributed an average of 9.9 percent at the end of Q3, compared to a
contribution rate of 8.5 percent for individuals who only contribute to
their 401(k).
“Health savings accounts can be a great way to save for health care expenses alongside saving in a 401(k), plus they include three key tax6 benefits: contributions go in tax-free, grow tax free and balances and savings can be withdrawn tax-free for medical costs,” continued Thompson.
About Fidelity Investments
Fidelity’s
mission is to inspire better futures and deliver better outcomes for the
customers and businesses we serve. With assets under administration of
$6.5 trillion, including managed assets of $2.4 trillion as of September
30, 2017, we focus on meeting the unique needs of a diverse set of
customers: helping more than 26 million people invest their own life
savings, 23,000 businesses manage employee benefit programs, as well as
providing more than 12,500 financial advisory firms with investment and
technology solutions to invest their own clients’ money. Privately held
for 70 years, Fidelity employs more than 40,000 associates who are
focused on the long-term success of our customers. For more information
about Fidelity Investments, visit www.fidelity.com/about.
Past performance is no guarantee of future results.
Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
The investment risk of a target date fund changes over time as the fund's asset allocation changes. The funds are subject to the volatility of the financial markets, including that of equity and fixed income investments in the U.S. and abroad, and may be subject to risks associated with investing in high-yield, small-cap, and foreign securities. Principal invested is not guaranteed at any time, including at or after the funds' target dates.
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1 Analysis based on 22,300 corporate defined contribution
plans and 15.3 million participants, as of September 30, 2017. These
figures include the advisor-sold market, but exclude the tax-exempt
market. Excluded from the behavioral statistics are non-qualified
defined contribution plans and plans for Fidelity’s own employees.
Fidelity’s IRA analysis based on 8.99 million IRA accounts.
2
Generational start/end dates were chosen to align with Pew Research.
Boomers (born 1946 - 1964), Gen X (born 1965 - 1980), and Millennials
(born 1981 - 1997).
3 This hypothetical example assumes
the following (1) annual IRA contributions on January 1 of each year
starting in 2015 for the age ranges shown, (2) maximum annual IRA
contributions are $5,500 in all years beginning in the first year 3) an
additional $1,000 catch-up contribution for each year in which the
investor is age 50 or older by December 31 of the year for which the
contribution is made, (4) an annual rate of return of 7% and (5) no
taxes on any earnings within the IRA. The ending values do not reflect
taxes, fees or inflation. If they did, amounts would be lower. Earnings
and pre-tax (deductible) contributions from Traditional IRAs are subject
to taxes when withdrawn. Earnings distributed from Roth IRAs are income
tax free provided certain requirements are met. IRA distributions before
age 59 1/2 may also be subject to a 10% penalty. Systematic investing
does not ensure a profit and does not protect against loss in a
declining market. This example is for illustrative purposes only and
does not represent the performance of any security. Consider your
current and anticipated investment horizon when making an investment
decision, as the illustration may not reflect this. The assumed rate of
return used in this example is not guaranteed. Investments that have
potential for a 7% annual rate of return also come with risk of loss.
4
Includes plans that utilize target date funds as a qualified default
investment alternative, or QDIA.
5 Based on internal
Fidelity data. The number of clients on Fidelity’s HSA platform
increased 44 percent from Q3 2016 through Q3 2017, and the number of
individual Fidelity HSA holders has increased 35 percent.
6
With respect to federal taxation only. Contributions, investment
earnings, and distributions may or may not be subject to state taxation.
The triple tax advantages are only applicable if the money is used to
pay for Qualified Medical Expenses as described in IRS Publication 969.
