Julie Jason:
Retirement funds keep growing.
Not that I would want you to keep up with “the Joneses,” but are you saving for retirement? Don’t be left out. Retirement savings is in full swing right now.
Fidelity Investments, considered the top provider of individual retirement accounts ( IRAs) in the United States, recently released its 2021 first- quarter analysis of retirement accounts
( tinyurl. com/ 287wuecn), with the headline being that average balances among more than 30 million IRA, 401( k) and 403( b) retirement accounts reached record levels for the second consecutive quarter.
That’s especially noteworthy considering the financial challenges related to retirement savings that occurred during the pandemic. Some companies temporarily suspended matching contributions for 401( k) s, while a recent MagnifyMoney poll
( tinyurl. com/ physhf46) indicated that nearly 48 percent of those surveyed who had a retirement savings account either stopped saving during the pandemic or decreased their retirement contributions.
Yet according to the Fidelity analysis, the average IRA balance was $ 130,000, a 31 percent increase from the first quarter of 2020. The average balances for 401( k) s ($ 123,900, up 36 percent) and 403( b) s ( a record $ 107,300, up 42 percent) also saw a big advance in 2021 from the first quarter of 2020.
Kevin Barry, the president of workplace investing at Fidelity, said in a statement that “individuals can’t control how the market performs from quarter to quarter or year to year. What they can control is establishing and sticking to consistent, positive savings behaviors.”
Fidelity noted that one factor for the growth in IRA contributions during the first quarter of 2021 involved the time of the year, as some investors sought to make a tax- deferred contribution ahead of the deadline for filing their 2020 tax returns. Overall, contributions were made to 1.3 million IRA accounts in 2021’ s first quarter, a gain of 52 percent from the same quarter in 2020.
Another positive trend involved younger people saving for retirement, as 26 percent of overall IRA contributions in 2021’ s first quarter were being made by investors under the age of 35 ( climbing from 23 percent in the first quarter of 2020). I would like to see that percentage continue to grow.
I’m also a fan of Roth IRAs, which offer tax- free withdrawals in retirement. According to Fidelity, the money flowing into Roth IRAs made up 60 percent of all IRA contributions for the first quarter of 2021.
Good news was also in evidence when it came to employer contributions. According to Fidelity, 95.5 percent of individuals on its 401( k) platform had some form of contribution to their account in the first quarter, with 83.6 percent making a contribution to their 401( k) and receiving an employer contribution; 7.3 percent making a contribution but not receiving an employer contribution; and 4.5 percent receiving only some type of employer contribution.
According to Fidelity, the average 401( k) employer contribution rate was 4.6 percent ( with the average amount contributed being $ 1,720). The most popular formula for 401( k) matches? It continued to be a 100 percent matching contribution for the first 3 percent of an employee’s contribution, with a 50 percent match for the employee’s next 2 percent. In my view, that is “free money” for retirement savers, something everyone needs to take advantage of.
With financial challenges still being felt by many people, it might seem somewhat surprising that the percentage of workers who had an outstanding 401( k) loan declined to 17.5 percent in the first quarter of 2021 from 19.7 percent in the same quarter of 2020. Only 1.6 percent of 401( k) savers started a new loan during the first quarter of 2021, down from 2.4 percent a year earlier, while the percentage of workers who made a withdrawal from their 401( k) ( including hardship withdrawals) dropped to 2.4 percent in the first quarter of 2021 from 3 percent the year prior.
In a separate study, Fidelity asked respondents how they used the money from their most recent 401( k) or 403( b) loan or withdrawal. Forty- four percent cited paying down or off debt, while 37 percent used it for home expenses ( including buying a home or making improvements to one). Interestingly, 60 percent chose the loan option because they preferred borrowing from themselves over borrowing from others.
Borrowing from yourself reminds me of an old adage that I’ve mentioned before, one that is appropriate to those who are successful in saving for retirement: Pay yourself first. If the pandemic has caused you to move away from investing in your retirement, try to get back to it as quickly as you can.
Julie Jason, JD, LLM, a personal money manager ( Jackson, Grant of Stamford) and author, welcomes your questions/ comments ( readers@ juliejason. com). Her awards include the 2020 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award- Winning Financial Columnist.” To hear Julie speak, visit juliejason. com/ events.