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The first and second quarters were, um, tumultuous for investors, including for anyone with a 401(k) or other workplace retirement plan.
After dropping like a stone in April following the announcement of the Trump administration’s punitive and highly confusing tariffs regime, stocks eventually staged a comeback to finish the second quarter at record highs.
The average 401(k) balance as of June 30 itself reached a record high of $137,800, up 8.4% from the $127,100 recorded at the end of the first quarter, according to data on roughly 25 million accounts from Fidelity Investments, the largest recordkeeper of workplace retirement plans. And the average balance grew by 4.6% from $131,700 at the end of last year.
How much people saved in the second quarter made a big difference, too. On average, Fidelity found that 401(k) participants were socking away a little more than 14% of their salary – of which 9.5% came from employee contributions and 4.8% came from their employer’s matching contributions.
Roughly 5.5% of participants changed their asset allocation during the second quarter, which isn’t too far off the average for any quarter and is below the 7.3% who made changes at the start of the pandemic in the first quarter of 2020, according to a Fidelity spokesperson. Fidelity, however, did not provide information on the most common changes that group made to their portfolios.
Depending on your own spending needs, your health, when you plan to quit working and the cost of living where you will spend your later years, you may or may not need to have $1 million or more saved on top of your Social Security benefits to live comfortably in retirement.
But that is a threshold amount many Americans think is necessary.
So how is it going for those with 401(k)s?
The number of accounts with balances of $1 million or more rose to an all-time high of 595,000 by the end of the second quarter, up from 512,000 at the end of the first quarter and up from 497,000 a year earlier. As a share of all the 401(k) accounts in the Fidelity database, the 595,000 accounts only represent 2.4%.
The median balance for that group as of June 30 was $1.4 million. So, half of those in the cohort had more than that. That second-quarter balance is up from $1.38 million at the end of this year’s first quarter and up from $1.37 million a year earlier.
Of the million-dollar-plus accounts, the majority (346,000) belonged to Gen Xers, the generation of people who will start retiring within the next decade. In the first quarter, only 287,000 accounts in the $1 million-plus club belonged to this cohort.
Another 628,000 accounts belonging to Gen Xers had balances of between $500,000 and $999,999, up from 587,000 in the first quarter, per Fidelity.
While those increases are good news, the account numbers represent a very tiny fraction of the 65 million or so Gen Xers living in the United States today.
Similarly concerning, when considering 401(k) participants across all generations, the median balance was just $32,300 at the end of June, up from $29,800 at the end of the first quarter. That objectively low number is partly a reflection of the entrance of Gen Z into the workforce, since they have only been saving a little while.
The median among Gen Xers’ accounts alone is a bit better – $62,400. But that still means half of all Gen X accounts had less than that amount.
As interesting (or jarring) as it may be to know how your savings compare to overall averages, to figure out whether you yourself can live comfortably in retirement, it is far more important to estimate what your needs and resources will be when you quit working in order to assess whether your savings habits today will allow you to adequately support yourself in your later years.