Working Americans haven’t saved as much as they believe they’ll need for retirement, but employers and their workforce are starting to ramp up their contributions.
In the first quarter of 2019, the average 401(k) balance rose to $103,700 — an 8% increase from 2018’s fourth quarter, according to an analysis of Fidelity Investments’ 30 million retirement accounts, released by the investment group on Thursday. Fidelity executives say the growth is largely due to increased employee contributions and employer match programs.
“Average account balances are up. Certainly market activity has something to do with that, but we’re continually seeing people are saving more and taking [retirement] seriously as a big priority in their lives,” says Katie Taylor, vice president of thought leadership at Fidelity Investments, who noted that employers are taking initiative by providing matches.
Fidelity’s report says employee contributions averaged $2,370 the first quarter, a 15% increase from last year. Meanwhile, employers contributed 6% more to their workforce’s retirement accounts this year, an average of $1,780 per employee. With these combined deposits, around 13.5% of an employee’s salary is being saved for retirement, which is nearly the amount advised by Fidelity retirement experts.
“Fidelity recommends saving at least 15% of your income for retirement, and it’s encouraging to see that, on average, people are saving more for retirement,” says Kevin Barry, president of workplace investing at Fidelity Investments. “One of the most important aspects of a retirement savings strategy is making sure you’re contributing enough to reach your goals.”
Fidelity’s report broke down current 401(k) balances by generation and compared them to what they were in the aftermath of the stock market crash 10 years ago.
Baby boomers, Gen X and millennials all saw significant increases after a decade, but none were as dramatic as millennial accounts. The youngest generation on the study increased their savings by 1,762% (yes, you read that right). In 2009, millennials saved $7,000 in Fidelity 401(k) accounts on average. Today, those same millennials have around $129,800 saved toward retirement — a decent start for a young person, Taylor says.
“Ten years ago, most millennials were just entering the workforce, so I’m not surprised the balance was low,” Taylor says. “But a lot can happen in 10 years; they’ve gotten older and advanced more in their careers, so they’re starting to think about the future a bit more.”
The two older generations also ramped up their savings. In 2009, Gen X started out with $37,000 in savings; now, they have around $268,900 in their 401(k) — a 626% difference. By contrast, baby boomers had around $76,500 saved in 2009; since then, their 401(k) balance grew to $357,200 — a 367% increase. While they could certainly help their situations by contributing more to the 401(k), Taylor says baby boomers and Gen X are on the right track to retirement.
“I think many of those boomers have been saving for a while, and they may have access to pension benefits that were offered earlier in their careers,” Taylor says. “Gen X, the sandwich generation, has a lot going on with kids going to college and taking care of aging parents. They need to set a savings strategy, budget and deal with the debt they have to stay on track.”
While each generation is racking up the savings, none of their 401(k) balances reach the amount they think is needed for retirement, according to a study by
With their current Fidelity Investment 401(k) balances, Gen X and baby boomers can at least afford the cost of
“Healthcare is one of the potentially most expensive things you can have, but also really hard to predict,” Taylor says. “Fidelity says you should have 10 times your salary saved in a 401(k) to cover retirement, and that includes the cost of healthcare.”
Retirees will also have access to Social Security and Medicare, but for those still concerned about saving, Taylor recommends using an HSA. More and more employers are offering HSAs; Fidelity Investments says that in 2017, 112 new employers began offering health savings accounts to employees and that the company saw a 50% increase in the number of new HSA account openings from 2017.
“If you stay the course with your savings strategy, look into the HSA,” Taylor says. “HSA plans have the ability to pay for expenses now and in the future. Another benefit to that, expense you pay out of the account will be tax free — that’s something the 401(k) doesn’t offer.”
