Fidelity, one of the largest retirement plan administrators in America, released a retirement survey that revealed the following interesting information for 2021.
- The average 401(k) balance rose to $110,000, a 7% increase from $103,700 in Q1 2019. The year-over-year average balance is also up roughly 2% from $104,000 in Q2 2018.
- The average IRA balance increased to $110,400, a 2% increase from last quarter and 3% higher than the $106,900 balance one year ago. The average 403(b)/tax exempt account balance increased to $88,600, a 3% increase from last quarter and up 6% from Q2 2018.
- The number of 401(k) and IRA millionaires reached record levels. The number of people with $1 million or more in their 401(k) increased to a record 196,000, up from 180,000 at the end of Q1, while the number of IRA millionaires increased to 179,700, also a record high and an increase from 168,100 last quarter.
More Findings On Average Retirement Account Balances
- The average employee contribution rate climbed to a record-level 8.8% in Q2, nearly a full percentage point higher than ten years ago. Nearly a third (32%) of savers increased their contribution rate in Q2, the highest quarterly percentage ever and nearly three times the 11% of savers that increased their retirement contribution rate in Q2 2009. Among millennials, the percentage of workers that increased their savings rate was 38%, while 34% of women increased their savings rate.
- The percentage of IRAs owned by millennials at the end of Q2 increased by 20% over the same period last year. Among millennial women, the percentage of IRAs owned at the end of Q2 increased 19% over Q2 2018.
- Among participants who have been in their 401(k) plan for 10 years straight, the average balance reached $305,900, more than five times the average balance of $59,900 for this group 10 years ago.
What’s great about these retirement savings facts is that the average American has indeed gotten wealthier thanks to the amazing bull market that began in 2009.
Average Retirement Account Balances Overview
Below is the snapshot of the average retirement account balances in 2019 compared to the average retirement account balances in 2018 and 2019.
Notice the ~100 percent increase in the 401(k) balance, IRA balance, and 403(b) balance from 2009 to 2019.
A record amount of retirement plan participants shows that Americans are getting more serious about saving for retirement.
“Increasing your contribution rate, even by one percent, can make a big difference in your long-term retirement savings – what may seem like a small amount today can have a significant impact on your account balance in 10 or 20 years,” said Kevin Barry, president of Workplace Investing at Fidelity Investments.
Since the passage of the Pension Protection Act in 2006, the percentage of employers that automatically enroll new employees in the company’s 401(k) has increased to nearly 35%.
And as the number of employers auto enrolling employees has grown, the default contribution rate for auto enrolled employees has also steadily increased – as of the end of Q2, more than one in five employers (20%) defaulted auto enrolled employees at a contribution rate of 6% or higher, more than three times the 6% of employers that defaulted employees at this rate as of Q2 2009.
While a 3% default contribution rate is still the most popular among employers, the percentage of employers defaulting at this rate has dropped to 44%, down from more than 60% 10 years ago
Retirement Account Balance Targets By Age
Despite the tremendous progress in retirement account balances since 2009, it’s still not enough to live a comfortable retirement life if you want to retire by 60.
I highly encourage everyone to max out their 401(k)s and IRAs (if eligible). Starting in 2020, the maximum 401(k) contribution limit is $19,500. For the IRA, the maximum contribution limit stays at $6,000.
Once you’ve maxed out your 401(k) and/or IRAs, it’s vital that you start focusing on building your after-tax investments in order to generate as much passive income as possible.
Below is the median and average 401(k) account balance by age versus my recommended 401(k) account balance by age.
Below is my after-tax account balance by age if you want to achieve financial freedom sooner, rather than later. Your go is to try and accumulate at least $1 million in your pre-tax accounts by age 50 and another $1 million in your after-tax accounts by age 50 as well.
Ideally, you’ll accumulate 3X more in after-tax accounts than pre-tax accounts in order to generate enough passive income to live off. When you hit 59.5, you can then withdraw from your 401(k) or IRA penalty-free.
Minimize Investment Fees
Once you’ve got into the great habit of investing aggressively in both pre-tax and after-tax accounts, you’ve got to make sure you’re not paying any unnecessary fees that will drag down your future returns.
To do so, I recommend signing up for Personal Capital and using their freeInvestment Checkup tool. All you’ve got to do is sign up for free, link your accounts, and click the Investment Analyzer link at the top of the dashboard.
Below is an example of how much my 401(k) portfolio was paying in fees each year. The main culprit was a Fidelity Blue Chip Growth Fund, which I quickly switched to a Vanguard index fund instead to save 80% on fees.
Diversify Your After-Tax Investments
401(k) and IRAs are almost always focused on stocks and beyonds. Therefore, for diversification purposes, consider investing in real estate with your after tax investments.
One of my favorite ways to buy real estate is through real estate crowdfunding. My favorite platform for non-accredited investors is Fundrise. My favorite platform for accredited investors in CrowdStreet. I’ve met with member of both companies before and like what they are doing.
Because I own multiple properties in expensive San Francisco, I’ve diversified my real estate holdings by investing in the heartland of America through real estate crowdfunding.
Valuations are cheaper, cap rates are higher, and the income is completely passive. Also explore Gateway cities for more opportunities.
Below is an example of various commercial real estate properties that were available to Fundrise investors. Fundrise also has various types of eREITs, which is their portfolio of different properties with specific regional focuses or investment style focuses.
In addition to real estate crowdfunding, you can also consider purchasing publicly traded REITs. REITs will give you broader exposure to real estate across the country. Some REITs are also speciality REITs, like Omega Healthcare, which focuses on senior living properties.
When it comes to your retirement, nobody is going to save you but yourself. Over the long run, stocks, bonds, and real estate have outperformed inflation and provided solid returns. There’s no reason to believe that over a 10-20 year period, these asset classes will likely continue to do well.
Here are some additional articles on retirement to check out.
- Check out how the Latest 401(K) Balance By Age Compare To Recommended Amounts