Americans have been diligently growing their retirement savings, with 401(k) contributions on the rise and stock market gains making a positive impact.
According to a recent report from Fidelity, the average 401(k) balance increased by 13% year over year as of the second quarter ending in June. This growth marks the third consecutive quarter of positive momentum, largely driven by the upward movement of stocks. The S&P 500 index, which tracks 500 of the largest U.S. companies, has seen an 18% increase over the past year.
Fidelity’s analysis reveals encouraging news, indicating a rebound in retirement account performance following a downturn in 2022. That year, characterized by significant declines in both stocks and bonds, was the worst for 401(k) account performance since the Great Recession.
Building wealth through a 401(k) requires patience, as the journey typically involves ups and downs. However, it remains a reliable method for saving for retirement. 401(k) plans offer participants the opportunity to make tax-deferred contributions, receive employer matches, and invest in a diverse range of assets.
As of June, the average 401(k) balance stood at $127,100. Here’s a breakdown of the average savings by generation:
- Boomers (born between 1946 and 1964): $242,200
- Gen Xers (born between 1965 and 1980): $182,100
- Millennials (born between 1981 and 1996): $62,000
- Gen Zers (born between 1997 and 2012): $12,000
The average 401(k) savings rate, inclusive of employer contributions, reached 14.1% in the second quarter, a record level that closely aligns with the 15% recommended savings rate by Fidelity.
Irrespective of age, most Americans’ 401(k) investments are typically in stocks and bonds, often through mutual funds or target-date funds. These plans enable employees to make regular contributions that are taxed upon withdrawal after reaching the age of 59 1/2. The general strategy is to withdraw funds in retirement when in a lower income tax bracket.
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