The number of 401(k) accounts holding at least $1 million has surged to a record high, underscoring the increasing disparity in wealth accumulation. According to Fidelity Investments, the count of such million-dollar accounts reached nearly 500,000 in the second quarter of 2024, marking a 2.5% increase from the previous quarter. This growth, though less dramatic than in past periods, highlights a persistent trend of wealth accumulation among high-net-worth individuals.
Sharon Brovelli, president of workplace investing at Fidelity, commented on the trend: "Although increases were modest, retirement savers in the second quarter of 2024 benefited from the continued upswing of the previous quarter, when contribution levels and average account balances reached record highs." The average 401(k) balance for the quarter stood at $127,100, a notable increase, yet still below the peaks observed in 2021.
The expansion in the number of retirement millionaires reflects broader market conditions and the effectiveness of tax incentives for retirement savings. As the financial markets have performed well, many Americans have been able to leverage these conditions to build substantial nest eggs. This trend is evident in Fidelity's data, which also shows that total average 401(k) savings rates have edged up to 14.2%, approaching the firm's suggested savings rate of 15%.
However, this growth in retirement savings is not uniformly distributed. The ability to accumulate a seven-figure 401(k) balance is often concentrated among those who are already financially well-off. These individuals benefit disproportionately from tax breaks designed to encourage retirement savings, a point underscored by the fact that many Americans are unable to fully utilize these tax incentives. Factors such as limited access to employer-sponsored 401(k) plans and the challenge of saving the maximum allowable contribution ($23,000 this year) contribute to this disparity.
The broader context of these figures reveals a gap between perceived and actual retirement needs. A recent study by Northwestern Mutual found that Americans believe they will need $1.46 million to retire comfortably, a figure significantly higher than the average 401(k) balance. This discrepancy highlights the ongoing challenge for many individuals to save adequately for retirement, even as a subset of wealthy individuals continues to benefit from favorable financial conditions.
The Social Security Administration's warning about the depletion of trust funds by 2034 further complicates the retirement savings landscape. As more than four million Americans turn 65 this year-the largest cohort in history-there is growing concern about the sustainability of Social Security benefits. This looming challenge underscores the importance of individual retirement savings, yet also emphasizes the need for systemic solutions to address the retirement security gap.
The rise in 401(k) millionaires is also mirrored in other retirement accounts, such as IRAs and 403(b)s. Fidelity's analysis indicates similar growth across these account types, suggesting that the trend is not confined to any single type of retirement savings vehicle. This reflects a broader pattern of increased savings among those who have the means to capitalize on favorable market conditions.
