Finance

American Savers: Keep Up The Good Work!

And consider supporting automatic retirement account enrollment.

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The pandemic has been very bad for a lot of people in terms of both bodily and financial health. Yet, a good number of other folks, and not just the billionaires and multimillionaires, have been doing quite well (perhaps not incidentally) while a number of outlets for blowing cash on useless nonsense have been shuttered.

Fidelity Investments, the largest provider of 401(k) plans in the U.S., recently released a report about the status of Americans’ investments accounts. At least for those actually saving for retirement, the numbers could hardly be better.

Average retirement account balances reached new records in the second quarter of 2021. The average 401(k) balance increased 24 percent from a year ago to $129,300. IRA balances fared even better, reaching $134,900 on average.

The amount retirement savers were contributing increased at well: The average contribution rate of 401(k) savers swelled to 9.3 percent. In general, younger savers were even more on board with the trend, with 54 percent of Generation Z workers who have retirement accounts increasing their retirement contributions over the last year, along with 43 percent of millennials. Only 7 percent of workers decreased their savings rates over the past 12 months.

The U.S. has also been minting retirement account millionaires in the wake of the pandemic. There are now 412,000 American workers with at least $1 million in their retirement accounts, an increase of 84 percent from a year ago. While this only represents about 2 percent of 401(k) plan participants, it is a new record, and one out of every 50 retirement savers reaching millionaire status is certainly nothing to sneeze at.

Unsurprisingly in a year when there have been repeated gangbusters stock market surges, 85 percent of the growth in account balances originated with stock market performance as opposed to individual savings behavior. Still, retirement plan participants get some credit beyond just riding market forces, with savings rates generally increasing across the board, and savings rates especially increasing amongst younger demographic groups.

Of course, no article about retirement accounts would be complete without at least noting that a lot of people don’t have them, or have them but aren’t robustly contributing to them. A quarter of American workers have less than $10,000 saved for retirement. 

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One of the keys to increasing retirement savings appears to be automatic enrollment. When workers have to opt out rather than opt in to an employer-sponsored retirement account, 87 percent of them stick with the plan. On the other hand, when an employer-sponsored retirement plan is made available to workers but they actually have to proactively sign themselves up, only 52 percent enroll, proving that it’s not just economic hardship but also at least occasionally good old-fashioned stupidity and laziness that keep a lot of people from providing for themselves in old age. A number of states are now experimenting with automatically enrolling workers in IRA savings programs.

I’ve advocated growing wealth through passively managed index fund investments for some time now, and that appears to have been a particularly good retirement savings strategy during the pandemic. However your funds are managed though, increasing contributions during your working life can only stand to benefit you in retirement. Whether from lack of financial temptation in a partially shuttered economy, big savings on gas and vehicle maintenance costs while working remotely, salary increases, or a heightened sense of personal responsibility, something is causing a good number of Americans to contribute more to their retirement nest eggs. That is undoubtably paying off already, as evidenced by the new record number of retirement account millionaires.

And if you’re one of those Americans with little to nothing saved for retirement, well, you’re probably not reading a financial article about record-high retirement savings numbers. The rest of you though, keep up the good work. Also maybe consider supporting automatic retirement account enrollment policies to help out the less retirement attuned: You’re going to want company in doing expensive old people stuff when you retire.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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