Not that I want you to follow the Joneses, but are you saving for retirement? Don’t be left out. Retirement savings are in full swing right now.
Fidelity Investments, considered the leading provider of individual retirement accounts (IRAs) in the United States, recently released its Q1 2021 Retirement Account Analysis (tinyurl.com/287wuecn), with the headline being that the average balances among over $ 30 million The IRA retirement accounts, 401 (k) and 403 (b) reached record levels for the second consecutive quarter.
This is particularly noteworthy given the financial challenges of saving for retirement that arose during the pandemic. Some companies have temporarily suspended matching contributions for 401 (k) s, while a recent MagnifyMoney survey (tinyurl.com/physhf46) found that nearly 48% of those surveyed who had a retirement savings account have stopped saving during the pandemic or reduced their pension contributions. .
Yet, according to Fidelity’s analysis, the average IRA balance was $ 130,000, a 31% increase from the first quarter of 2020. Average balances of 401 (k) ($ 123,900, in 36% increase) and 403 (b) (a record $ 107,300, up 42%) also saw strong gains in 2021 compared to the first quarter of 2020.
Kevin Barry, president of workplace investing at Fidelity, said in a statement that âindividuals cannot monitor the performance of the market quarter over quarter or year over year. What they can control is establishing and sticking to consistent and positive saving behaviors.
Fidelity noted that one factor in the growth in IRA contributions in the first quarter of 2021 was the time of year, as some investors looked to make a tax-deferred contribution before the deadline for filing their contributions. 2020 tax returns. Overall, contributions were made to 1.3 million IRA accounts in the first quarter of 2021, up 52% ââfrom the same quarter in 2020.
Another positive trend was among young people saving for retirement, as 26% of overall IRA contributions in the first quarter of 2021 were made by investors under 35 (up from 23% in the first quarter of 2020). I would like this percentage to continue to increase.
I’m also a fan of the Roth IRAs, which offer tax-free withdrawals in retirement. According to Fidelity, money in Roth IRAs represented 60% of all IRA contributions for the first quarter of 2021.
The good news was also there with regard to employer contributions. According to Fidelity, 95.5% of individuals on its 401 (k) platform had some form of contribution to their account in the first quarter, with 83.6% contributing to their 401 (k) and receiving an employer contribution. ; 7.3% contributing but not receiving employer contribution; and 4.5% only receive some type of employer contribution.
According to Fidelity, the average 401 (k) employer contribution rate was 4.6% (the average contribution amount was $ 1,720). The most popular format for 401 (k) matches? This was always a 100% matched contribution for the first 3% of an employee’s contribution, with a 50% match for the employee’s next 2%. In my opinion, this is âfree moneyâ for retirement savings that everyone should take advantage of.
With financial challenges still being felt by many, it may seem somewhat surprising that the percentage of workers who had an outstanding 401 (k) loan declined to 17.5% in the first quarter of 2021 from 19.7% in the same quarter of 2020. Only 1.6% of 401 (k) savers started a new loan in the first quarter of 2021, up from 2.4% a year earlier, while the percentage of workers who made a withdrawal of their 401 (k) (including hardship withdrawals) fell to 2.4% in the first quarter of 2021 from 3% the year before.
In another study, Fidelity asked respondents how they used the money from their most recent 401 (k) or 403 (b) loan or withdrawal. Forty-four percent cited paying down or paying off their debts, while 37% used it for their household expenses (including buying or improving a home). Interestingly, 60% chose the loan option because they preferred to borrow from themselves rather than borrow from others.
Borrowing from yourself reminds me of an old saying I mentioned before, a saying that goes with those who are successful at saving for retirement: Pay yourself first. If the pandemic has caused you to give up investing in your retirement, try to get back to it as quickly as possible.