Retirement Account Balances Are on the Rise. Are You Keeping Up?

A couple happily look over their retirement savings, which have grown recently.

Americans, it seems, are getting more financially secure – at least on the retirement front.

For the third quarter in a row, retirement account balances increased for households across the country, according to a new analysis from Fidelity Investments.

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The company analyzed the balances of more than 45 million IRAs, 401(k) and 403(b) accounts and found that balances increased both quarter-over-quarter and year-over-year.

How Much Have Balances Increased?

Balances increased significantly between the first and second quarters of 2023. IRA balances increased 4.4%, 401(k) balances grew 3.8% and 403(b) balances rose 4.6%, according to Fidelity’s data.

All three account types have also increased since the second quarter of 2022. For example, the average IRA balance reached $113,800 in the second quarter of 2023, rising from $110,800 a year earlier. The average 401(k) grew from $103,800 in the second quarter of 2022 to $112,400 in 2023. The average owner of a 403(b) account, meanwhile, saw their balance jump from $93,300 in 2022 to $102,400 in 2023.

This trend holds true across every working generation. Generation Z, Millennials and Generation X have all grown their savings considerably. Even Baby Boomers saw a slight uptick in their retirement accounts, which is particularly notable given that this generation has largely entered retirement. Members of Gen Z are the big winners, with a 66% jump in their 401(k) balances over the last year.

As if that weren’t enough, people are opening more retirement accounts than ever. Investors hold 14.3 million open IRA accounts, a significant jump even compared with just one year ago, Fidelity found.

The number of new accounts highlights one of the most important findings in Fidelity’s survey. This isn’t just passive growth. People are willing and able to take their retirement more and more seriously.

Steady Contributions Fuel Increases

A woman adds up her retirement savings across various accounts.

A woman adds up her retirement savings across various accounts.

To be sure, strong market conditions have helped investors’ retirement accounts grow. While the stock market has been volatile over the past several years, it has by and large maintained steady growth. That has helped boost savings across the board.

But much of this growth has to do with additional contributions, rather than the growth of existing money. Fidelity cites “steady employer and employee contributions” in its analysis as a major cause of the growth in retirement savings. The growing number of IRAs shows that investors are opening more retirement accounts and creating new ways to save. Young investors particularly (ages 18 to 35) have been likely to grow their retirement savings through contributions and new accounts.

All of this suggests a marketplace where workers have both the wherewithal and the insight to begin planning for their retirement early, a positive sign for long-term savings.

Impact of Student Loan Payments

This is important since student loan payments will resume Oct. 1, which will be a massive financial event for Millennials and members of Gen Z. Resumed payments will act as an effective tax increase on the under-45 cohort, which collectively makes up about half of all the nation’s consumption and spending.

“[M]any student loan borrowers have used the payment pause to focus on retirement savings with 72% of student loan borrowers contributing at least 5% to their 401(k), compared to only 63% prior to the payment pause,” Fidelity writes in its report. “No surprise, then, nearly 2-in-3 recent college graduates taking advantage of the Federal student loan payment pause have no idea how they are going to start repaying their student loans once the emergency pause is lifted.”

If you have student debt, take action now. Learn exactly what and where your loans are. Find out if you can take advantage of any programs or payment plans to reduce your monthly burden. Consider refinancing, although be careful; refinancing can save you money, but at the cost of waiving all the protections that come with a federal student loan. In total, have a plan for how you will manage this new burden so that your retirement savings don’t have to dip.

What Other Savers Should Consider

A woman reviews her retirement accounts on her laptop.

A woman reviews her retirement accounts on her laptop.

For other savers, the growth in IRAs is an excellent trend. This is particularly true when it comes to Roth IRAs. If you do not have one, consider opening a Roth IRA and maximizing your annual contributions. This will give you an extra tax-advantaged way to save for retirement, in addition to your 401(k).

For self-employed and contractor savers, the same rule applies in reverse. While more complicated, most people who work for themselves can establish a corporate form that allows them to open up a 401(k). This has the same effect, giving you an additional tax-advantaged account for building your retirement savings. However, in this case, try to work with a financial advisor or accountant to make sure that you get it right, as the process can be complicated.

All savers should also make sure to monitor their portfolios and rebalance their holdings to align with their target asset allocation. Finally, if possible, start an emergency fund. Having a segment of cash dedicated to sudden expenses can keep you from having to take a loan or early withdrawal against your retirement accounts. It isn’t always possible. For many people, the money just isn’t there, but try. You’ll thank yourself later.

Bottom Line

According to a new report from Fidelity, Americans have boosted just about every aspect of their retirement accounts, from how many they have to how much is in them. However, there are steps you can take to continue to make progress toward your retirement goals.

Retirement Planning Tips

  • SmartAsset’s retirement calculator can help you estimate how much you’ll need to save to afford the retirement that you want. The tool can also help you monitor your progress and give you a sense of how much you’re on target to save.

  • A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

  • Get retirement planning and investing tips Tuesdays through Fridays with the SmartMoney Minute newsletter. It’s 100% free and you can unsubscribe at any time. Sign up today.

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