Volatility? What volatility? 401(k) accounts make big gains despite market moves
Retirement savers saw their 401(k) balances grow during this year's second quarter, with more retirement accounts worth at least $1 million than ever despite market uncertainty and instability as a trade war looms between the U.S. and China.
New data gathered from 30 million Fidelity Investments retirement plans shows that the average 401(k) plan balance increased two percent to $106,000 in the second quarter when compared to this same time last year.
The financial gains helped over one-third of retirement savers who increased their contributions this past quarter.
"While we're seeing the market certainly play a role, the other part is that employees are saving more, employers are contributing more," vice president at Fidelity Investments Meghan Murphy said in a statement releasing the figures.
Fidelity reports that employees are setting aside more money for retirement now than ever before, with the average employee contribution rate rising to a record-setting 8.8 percent this quarter, an increase of 8 percent when compared to ten years ago.
Even a one percent increase in one’s 401(k) contribution pays big dividends over the years, according to Fidelity. When combined with employer contributions, which rose 4.7% in the last quarter, the payoff can be massive, especially when compared to such contributions a decade ago. The employer contribution rate has risen roughly 3.9 percent over a 10--year time span.
However, the recent increase in employee retirement gains should not come as much of a surprise, as one-third of employers are now automatically enrolling their employees into a 401(k) program.
And fewer employees are borrowing against their retirement savings, with retirement plan loans dropping to 20.1 percent this year compared to 22.6 percent back in 2013. 20 percent of those employers who automatically enrolled employees did so at a contribution rate of 6 percent or more.
Despite the stock market’s instability, retirement savers are still keeping their hands off of their portfolios, and recent stock market gains have increased the number of 401(k) and retirement accounts with balances over $1 million, with Fidelity reporting 96,000 401(k) accounts and 179,700 IRAs now holding that distinction.
"We have not seen a lot of increased activity as far as rebalancing or exchanges," Murphy said. "We tend to see less activity nowadays when there is market volatility because so many people are invested in a target date fund or using a professionally managed account."