In spite of the economic shock delivered by the COVID-19 pandemic last year, America’s retirement savers have never been on more solid financial footing.
Fidelity Investments, the nation’s largest manager of retirement accounts, reports 401(k) account balances have hit an all-time high of $129,300, up 24% from the same time 12 months earlier. Individual retirement account (IRA) balances are also significantly higher than at this time last year, rising 21% to nearly $135,000.
While it initially slammed the brakes on savings, some economists think the pandemic actually promoted savings toward the end of last year. Several surveys have shown that consumers increased their savings because they were spending less on travel, dining out, and major purchases.
Despite the economic disruption caused by the early economic lockdown, a Harris Poll conducted last September for CIT Group found that over half of U.S. consumers had increased their savings early in the pandemic. Young people appeared to be doing the best job of socking away cash. Gen Z and millennial consumers led the way with over 60% of both generations reporting an uptick in their savings rate.
Retirement savings dipped in 2020
Not all of that extra cash found its way into retirement accounts. A poll by personal finance publisher Kiplinger and wealth management firm Personal Capital found Americans’ retirement savings went down last year, mainly because so many people had to make withdrawals in order to make ends meet.
The Fidelity report shows people are back on track in their plans to set money aside for retirement. The fact that major stock market averages are at all-time highs has also been a contributing factor.
Baby boomers nearing retirement also helped propel retirement savings higher. A record 18.2% of boomers made a “catch-up” contribution to their 401(k) in the second quarter, with 58% of those workers making the maximum catch-up contribution of $6,500 by the end of last year.
Almost 12% of American workers reported increases in contributions to their retirement accounts. At the same time, a record 37% of employers enrolled new workers in automatic investments in their 401(k) plans.
There are also more retirement account millionaires in 2021. The Fidelity numbers show a record 412,000 401(k) accounts in the second quarter of 2021 had balances of $1 million or more. The number of people with $1 million in an IRA increased to 342,000, also an all-time high.