Despite fears of a potential recession, stubborn inflation and interest-rate hikes, Americans socked away more money for their retirement in the first quarter, especially the youngest workers, Generation Z, according to Fidelity Investment’s first-quarter analysis.
In a review of 44.5 million retirement accounts, Fidelity found that account balances are up for the second quarter in a row due to improving market conditions and an increase in contributions from employers. Additionally, total 401(k) savings rates improved and Gen Z continued to make impressive gains in retirement savings in both 401(k) and IRA accounts.
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“We are encouraged to see positive gains for retirement savers, evidenced through rising account balances, improved savings rates, and a commitment by employers – including small businesses – to help employees prepare for the future,” said Kevin Barry, president of workplace investing at Fidelity Investments.
“Americans have experienced some tumultuous years, but through Congress’ investment in retirement savings through the Secure Act of 2019, as well as individuals’ continued commitment to save, we are optimistic for the future of retirement security,” Barry said.
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The average IRA balance was $ 109,000 in the first quarter, a 5% increase from both the previous quarter and prepandemic levels five years ago. The average 401(k) balance increased to $ 108,200, up 4% from the fourth quarter of 2022 and 5% from five years ago. For 403(b) accounts, the average balance increased to $ 97,900, up 6% from the prior quarter and a 16% increase from five years ago.
The total savings rate for the first quarter, which reflects a combination of employer and employee 401(k) contributions, improved to 14% (compared to 13.7% in the fourth quarter of 2022), returning to the savings seen at the start of market volatility in first quarter of 2022 and just below Fidelity’s suggested savings rate of 15%.
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Boomers still in the workforce continue to save at the highest levels in the first quarter (16.7% versus 16.5% the fourth quarter of 2022) and Gen Z saving levels have inched up as well (10.5% versus 10.2% in the fourth quarter).
Fidelity said part of the progress can be attributed to the fact that the average 401(k) employer contribution, which includes profit-sharing and matching contributions, reached a record 4.8% in the first quarter. More than eight in 10 (85%) of workers received some type of employer 401(k) contribution in the first quarter, and 78% of workers contributed to their 401(k) at a level to allow them to get the full matching contribution offered by their employer.
In other positive news, outstanding 401(k) loans and average loan amounts continue to drop. The percentage of participants with a loan outstanding dropped to an all-time low of 16.6% for the first quarter, down slightly from the fourth quarter and down from 21% five years ago, Fidelity said.
Even with high-profile tech company layoffs, U.S. employers added one million jobs in the first quarter. The additions to the job market also had a positive impact on retirement enrollment, with 575,000 new workers automatically enrolled in their new employer’s plan in the first quarter, Fidelity said.
For Gen Z, there were several gains. The average account balance increased by 17% over last quarter – the highest of any age group. Gen Z account balances are up 34% from the year-ago first quarter, making them the generation with the most account growth over the last year. Also, Gen Z saw a 25% increase in IRA accounts opened in the first quarter as compared to a year ago, Fidelity said.
Overall, the number of IRA accounts continues to increase, especially among young savers. The total number of Fidelity IRA accounts continues to climb, reaching 13.9 million, up 11% over the first quarter of last year. Across generations, Roth accounts were the retail retirement savings vehicle of choice, with 58.4% of all IRA contributions going to Roth accounts in the first quarter.
“It’s encouraging that today’s younger generations have more financial awareness than any generation before them,” said Joanna Rotenberg, Fidelity’s president of personal investing. “This financial savvy will pay off in the long run, as making steady retirement contributions will help weather the inevitable financial downturns that will take place over time.”