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401(k) balances hit record highs: How to take advantage of 'the best chance of reaching your retirement goals'

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Key Points
  • The average 401(k) balance at the end of 2021 increased 4% from the third quarter and 8% from the same time in 2020, Fidelity data shows.
  • About 3 in 8 people increased the amount they're contributing to their retirement accounts in 2021.
  • "While investors have been facing an increasing level of financial challenges over the last year, we're glad to see that retirement savings continues to be a priority, especially among Gen Z investors," says Jason Jagatic, head of Workplace Thought Leadership at Fidelity.

One of the stranger aspects about the early pandemic was that, despite all the economic uncertainty, many Americans were able to get on stronger financial footing. The personal savings rate — the amount people save from their paychecks — spiked to historic levels in 2020 and 2021, and, overall, credit card debt fell during the first 18 months of the pandemic.

Americans also started saving a lot more for retirement: Quarter after quarter, statistics about retirement savings have been improving, according to Fidelity, the country's largest administrator of 401(k)s.

While the personal savings rate has dropped to pre-pandemic levels and overall credit card debt has begun creeping up again, retirement savings habits are still growing strong, Fidelity's report for the fourth quarter of 2021 shows.

The average balance in a 401(k) — the most common type of work-sponsored retirement account — reached a record $130,700 at the end of 2021, up 4% from the third quarter and up 8% from the year before, according to Fidelity.

The average 403(b) — a type of retirement account popular among public employers and non-profit organizations — reached a historic high of $115,100, and, like the average 401(k), grew 4% quarter over quarter and 8% year over year.

"While investors have been facing an increasing level of financial challenges over the last year, we're glad to see that retirement savings continues to be a priority, especially among Gen Z investors," says Jason Jagatic, head of Workplace Thought Leadership at Fidelity.

"An early start on your retirement savings gives you the best chance of reaching your retirement goals," he adds.

'Retirement savings continues to be a priority, especially among Gen Z investors'

It wasn't just the average balances that are putting a pep in the step of retirement savings watchers: A lot of other figures in the Fidelity report indicate that Americans are keeping up their good financial habits.

The total number of individual retirement accounts at Fidelity grew to a historic 12.3 million, a 13% increase over the year before. A lot of that growth came from Gen Zers, who increased the number of IRAs in their demographic by 146% from 2020.

The balance of the average IRA stayed relatively unchanged from the third quarter at $135,600, but that's still $7,000 more than it was a year, according to Fidelity.

The amount that people are investing in their retirement accounts also increased. A record 3 in 8, 38%, people increased their 401(k) contributions in 2021, with an average increase of more than 3%. Nearly a third of people with 403(b) accounts increased their contributions.

Plus, almost 5 in 6 savers took advantage of their companies' retirement match policies to add to their 401(k)s.

'You're not just investing for six months or a year out. You're investing for 10-, 20-, 30-years out.'

Fidelity's end-of-year report indicates that many Americans are checking all the boxes that many financial advisers think are essential for solid retirement saving.

That's a good thing, says James Royal, senior reporter at Bankrate. The key thing to remember is that you're investing for the long term, he says.

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"You're not just investing for six months or a year out. You're investing for 10-, 20-, 30-years out," Royal says. "Those little blips in the market are going to look like nothing in 10 years, right?"

When you're making your checklist for your long-term investments, it's smart to include these tried-and-true building blocks for your nest egg.

  • Take advantage of your company match. Many employer-sponsored retirement accounts match contributions you make up to a certain threshold. "Some will give you 100% on the first 4% that you contribute," Royal says. Indeed, the average company contribution to employee 401(k) plans in 2020 was 4% of workers' annual pay, according to the most recent survey from the Plan Sponsor Council of America. "So you put in 4%, they put in 4%, and suddenly you've got 8%," Royal says. "And that's why experts routinely say, 'Get your free 401(k) money first.'"
  • Start investing as soon as possible. "I can't really emphasize this enough is that time is your biggest ally," Royal says. "The longer you've got to let your money work, the better off you're going to be." The sooner you start, the more time your investments have the potential to grow thanks to compounding. "You've got to take advantage of that time," he says.

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