For many people, saving for retirement may seem impossible, as MarketWatch was reminded this week.
While some investors are saving thousands — or even millions — for retirement, others are saving almost nothing.
In fact, a typical American family, headed by a 30-something, has only $1,000 in retirement savings, according to the left-leaning Economic Policy Institute.
There is some evidence things are turning around — at least for people who are employed.
More people are saving for retirement this year, according to a report this week from Fidelity, an investment company that manages $6.8 trillion in customers’ assets.
What’s more, a record number of people became “401(k) millionaires” in the first quarter of 2018, according to Fidelity. This means their balance has hit that magical million-dollar number.
There were 157,000 401(k) millionaires at Fidelity in the first quarter of 2018, up from just 74,000 in the first quarter of 2016.
But again, let’s keep the Champagne on ice for now. That wealth is still on paper, and for younger investors there are still plenty of market cycles ahead.
And many Americans have no retirement account at all. This may be because of low income, heavy debt burden, failure to prioritize retirement savings, or countless other reasons.
Millennials are saving more
In the past 10 years, millennials (the population born between 1980 and 1995) have started participating much more in “defined-contribution” plans, which are accounts that savers choose to put a specific amount into, such as a percentage of their salaries, or a set dollar amount, per paycheck or per month.
The number of millennials who participate in some type of defined-contribution plan has spiked 75% in the past 10 years, Fidelity found. Millennial women, in particular, have boosted their savings in some key ways. The number of millennial women who are contributing to an IRA, or an investment account that grows tax-free or tax-deferred, has grown 23% in the past year.
And among all employees — of all ages — who are eligible to enroll in a Fidelity plan, some 69.5% actually did, up from 64.2% in 2007. That is largely because more employers are offering automatic enrollment into the plans, when employees first start their jobs.
(Fidelity drew these conclusions only by analyzing accounts managed by Fidelity. So the amount of people participating is calculated in terms of those who are eligible to enroll in a Fidelity plan.)
That said, we may need to temper this celebration. There are plenty of millennials who don’t have retirement accounts. Just 37% of working millennials have retirement accounts, according to researchers at the University of Missouri. But that research was done in 2013, and savings have increased since. Still, when considering Americans of all ages, just 49% are actively contributing to an employer-sponsored 401(k) account, according to a study from investment firm Edward Jones in 2018.
Employers are contributing more to employee retirement accounts
Employers are boosting how much they contribute to their employees’ retirement accounts, Fidelity found.
The average amount employees contribute to their retirement accounts has risen $720 in the past five years, and the average employer contributions have risen $470.
Employees, on average, contributed $6,560 last year in their retirement accounts (for the 12 months ending on March 31, 2018), and employers contributed $3,840.
Why: Employers are increasing the percentage they are auto-enrolling their employees to contribute, Fidelity said. Some 44% of companies that offer auto-enrollment start their employees at 4% or higher, up from 25% who did five years ago.
It is also more common for employers to match employee contributions dollar-for-dollar than in the past, according to the consultancy firm Aon Hewitt. Some 42% of companies in 2015 who offered plans matched employee contributions dollar-for-dollar, up from 31% in 2013.
Before 2013, contributing 50 cents for every $1 from an employee was most common.
That said, not every employer offers a retirement plan. Some 70% of workers who are employed by non-government agencies (“civilian” companies) have access to retirement benefits, and 91% of those who work for state and local governments have access, according to the Bureau of Labor Statistics. But that does not mean they necessarily enroll, and not all employers offer a match for employees’ contributions.
Retirement account balances are growing
The average balance in Fidelity defined-contribution accounts has grown significantly, as of the first quarter of 2018.
The average account balance is now $102,900, up from $87,600 in the first quarter of 2016.
Why: Some 70% of the increase happened because of growth in the financial markets, Fidelity said. And the other 30% has happened because of employees and employers contributing more.
Women, in particular, have seen their balances grow. The average balance for women is now $81,200, up 69% since 10 years ago.
Balances in IRAs have also continued to grow.
The average IRA in the first quarter of 2018 had a balance of $105,100, Fidelity found, up from just $52,000 in 2008.
Why: The number of people who contribute annually to an IRA has increased. The percentage of millennials, for example, saving in an IRA grew by 26% just in the last year.
And balances are growing for people who have both a defined-contribution plan and an IRA.
For those who have both, the average balance is now $299,700, up from just $139,000 in 2008.
Now contrast that, though, with the number of people who are far behind.
Just one-third of working Americans are saving money in an employer-sponsored or tax-deferred retirement account, according to U.S. Census Bureau researchers.