401(k) millionaires surged 43% in the past year - here's how long it took them to reach $1 million

By Jessica Hall

Becoming a 401(k) millionaire doesn't happen overnight. Here's how many years it took, on average.

The number of 401(k) millionaires surged 43% from a year ago, boosted by market gains and steady contributions. But those millionaire success stories were an average of 26 years in the making, according to Fidelity Investments.

The first quarter had 485,000 401(k)-created millionaires. That was a 15% increase from last quarter, when there were 422,000, and a 43% increase from a year ago's count of 340,000, Fidelity said.

Of course, these millionaires didn't turn rich overnight. On the contrary, these account holders have been in their plans for an average of 26 years and have an average contribution rate of 17%, Fidelity said.

The average first-quarter balance for 401(k) accounts hit $125,900, up 16% from the first quarter a year prior. The median 401(k) balance was $28,900. For 403(b) accounts, the retirement accounts for government and nonprofit workers, the average balance was $113,000, up 15% from a year ago.

Meanwhile, the average IRA balance reached $127,745, up 13% from the previous year, Fidelity said. IRA accounts tend to have slightly higher balances than 401(k)s because people often consolidate multiple 401(k)s into an IRA, Fidelity said.

Fidelity said the analysis reflected more than 45 million IRA, 401(k) and 403(b) accounts.

"We are encouraged to see account balances increase, providing solid proof that retirement savers are remaining invested and continuing to make steady contributions - while seeing the financial benefits as a result," said Sharon Brovelli, president of workplace investing at Fidelity.

The S&P 500 index SPX rose 10.6% in the first quarter.

While the retirement account gains marked an improvement, the average account balances still are far short of what Americans feel they need to retire. In the U.S., adults believe they will need $1.46 million to retire comfortably, according to Northwestern Mutual's 2024 Planning & Progress Study.

Read: How much will you need to retire? America's 'magic number' surges to $1.46 million.

The total average 401(k) savings rate reached a record high of 14.2% in the first quarter, driven by both employee and employer contributions. This savings rate is the closest it has ever been to Fidelity's suggested retirement savings rate of 15%, the company said.

The report also reflected the benefit of continuous savings. People who had been saving for 15 years saw a 7% increase in their account balances, Fidelity said. For the first time, the 15-year continuous balance for Generation X participants of $543,400 surpassed the 15-year continuous balance for baby boomers of $543,200, Fidelity said. Gen X are those born between 1965 and 1980, while baby boomers are those born between 1946 and 1964.

Even with the robust savings rate, Fidelity noted that people continued to borrow from their 401(k) accounts. A total of 17.8% of workers had such a loan in the first quarter, which was even with the rate seen in the fourth quarter, but higher than the rate of 16.7% seen a year ago, Fidelity said.

Meanwhile, although only 30% of small businesses offer a retirement savings plan, Fidelity found that those workers at small firms who had access to a retirement plan had heftier balances than the average 401(k) account.

Small-business retirement plans had an average balance of $152,000 with an average contribution rate of 8% - which outpaced the 9.3% deferral rate for a traditional 401(k), Fidelity said. The small-business accounts reflected SEPs, Simple IRAs and self-employed 401(k)s.

"Small businesses are at the heart of American communities and it is encouraging to see that when small-business employees are given the opportunity to save, they run with it," said Roger Stiles, president of Fidelity Wealth. "Offering small businesses a variety of options to help meet their retirement needs is an important way to close any existing retirement coverage gaps and get more Americans saving for retirement."

Do you have questions about retirement, Social Security, where to live or how to afford it at all? We want to hear from you. Join the conversation in our Facebook community: Retire Better with MarketWatch.

-Jessica Hall

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05-25-24 0508ET

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