In "Retirement Savers ‘Stay the Course’ In Spite of Stock Market Swings and Ongoing Economic Uncertainty,” Fidelity Investments reports that the 30 million 401(k)s investors it serves, “continue to save, and avoid major changes to asset allocation.”
This flies in the face of the news that inflation is heading Americans’ way and could, contrary to what President Joe Biden says, become an unfortunate mainstay. Third-quarter data that Fidelty released Thursday indicate Americans are continuing to save for their retirement at a stable clip, with an added boost from Gen Z investors.
With the S&P 500 index up 16.22% in the past year, helping to boost 401(k) balances, the phrase “win-win” could apply to Fidelity’s Q3 2021 report, with the news that retirement savers are tuning out news of a Delta variant stalling the economic recovery, paired with a record influx of Gen Z investors saving for retirement.
In the third quarter of 2021, the average 401(k) retirement account balance rose 15% from 3Q20 to $126,100; however, from the second quarter of 2021 it was down from $129,300. There was particular strong growth in individual retirement account (IRA) balances, which were also up 15% from the year prior, to $135,700 at the end of the third quarter. However, IRAs were up slightly from the previous quarter, when the average IRA account balanced ended at $134,900.
Another fact worth noting is that retirement withdrawals, asset allocation changes, and outstanding loans declined; as most experts say the key to retirement preparedness is saving and remaining focused on the long-term rather than short-term market volatility, these data sets are another good sign for those saving for retirement. Workers with an outstanding loan from their 401k reached a record low of 17.3% in the third quarter, and perhaps most promising, more than 97% of 401(k) participants either maintained or increased their contribution rate in the quarter ended September 30, 2021.
Gen Z Proves to Be Enthusiastic Savers
Financial advisers and asset executives typically characterize the financial outlook of younger Americans as pessimistic. Articles predicting Gen Z will repeat Millennials’ financial woes and that significant numbers of them still receive financial support from their parents present a narrative that Gen Z may be doomed to financial oblivion. However, data from Fidelity’s latest 401(k) snapshot and from other leading investment management and 401(k) providers proves otherwise. In fact, Gen Zers are indicating that they have smart saving habits.
An August 2021 Transamerica Center for Retirement study found Gen Z workers have started saving for retirement quickly, i.e. at much earlier ages, than prior generations. According to the data, “more than 70% of Gen Z workers are saving for retirement”.
Fidelity’s new analysis adds to this claim. Gen Z investors are flooding onto self-directed brokerage accounts, with a record 1.4 million Gen Z users on Fidelity’s platform, as of Q3 2021.
“As Gen Z enters the workforce, we will see more of these employees become auto enrolled in retirement plans” and, with that, their savings will increase as plan sponsors increasingly use broad-based investment options like target-date funds (TDFs) as the default investment, Mike Shamrell, a Fidelity spokesman, tells Newsmax.
Dan Peluse, executive director of Wintrust Retirement Benefits Advisors, backs up Fidelity’s claim, saying that the data he is seeing also shows Gen Z are “very fiscally responsible”. Additionally, Peluse said that, overall, he is “seeing higher account balances and higher saving rates today. Americans are saving more, with much of the impetus due to COVID, Peluse says.
Another notable Gen Z stat is only 2.5% have outstanding 401(k) loans, well below the overall 17.3% average, Shamrell adds.
Finally, Shamrell notes that with the positive news reported in Fidelity’s latest 401(k) snapshot, it is important to remember that “this is a quarterly snapshot, and saving for retirement is a long-term endeavor. In retirement saving, it is a marathon, not a sprint.”
Similar to incremental deposits into retirement accounts, bit by bit, any bit of savings, however big or however small, is one to be celebrated.
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