Wall Street’s gains, more savings lift 401(k) balances

Average plan grew 24% from 2020 as resilient stock market juices accounts

LOS ANGELES — Solid stock market gains through much of the pandemic and workers putting more of their pay toward their golden years are paying off for many retirement savers.

The average 401(k) plan balance grew 24% to a record $129,300 in the second quarter from a year earlier, according to a review of 19.8 million accounts by Fidelity Investments.

The median balance, a better measure of the typical plan size, was only $29,000, up 22% from a year earlier. Just 60 million Americans, including former employees and retirees, participated in 401(k) plans last year, according to The Investment Company Institute, an association representing investment funds.

Retirement plans also got a boost as contributions by employees, including more than half of Gen-z workers, increased to an all-time high in the second quarter. Also, fewer savers borrowed from their retirement accounts, keeping more of their money invested in the market as it rallied.

Still, most of the credit for juicing retirement plan balances goes to the resilient stock market, said Jessica Macdonald, Fidelity’s vice president of thought leadership.

“In 401(k) accounts especially, 85% of the balances that increased in (the second quarter) were due to market performance,” she said.

The S&P 500, a benchmark for many stock funds, plunged more than 20% in February and March last year as the pandemic knocked the economy into a recession, but recovered fully a few months later and continued to climb to new highs this year. The index ended the second quarter up 39% from a year earlier, buoyed by an improving job market and optimism that vaccinations would pave the way for more of the economy to reopen.

Workers’ better savings habits have also been a factor in building their nest egg. The average employee funneled 9.3% of their pay into their 401(k) in the second quarter, a record high, Fidelity said. About 38% of employees with Fidelity managed 401(k) plans increased how much they paid into their retirement account over the last year, while only 7% reduced their contributions.

Some 18.2% of baby boomers with a 401(k) made a “catch-up” contribution in the second quarter, a new high. This refers to the up to $6,500 that savers age 50 or older are allowed to contribute in a given year above the maximum annual contribution of $19,500. Such contributions have been increasing slightly over the past few years, Fidelity said.

Younger workers are also putting more of their pay into retirement plans. Among Gen-z employees, the oldest of which are now in their early 20s, some 54% increased their 401(k) contributions over the last year, while 43% of millennials did, the company said.

Fewer investors have been borrowing from their retirement savings, or are at least paying loans off more quickly. About 17.5% of 401(k) plans reviewed by Fidelity had an outstanding loan in the second quarter.